Performances
A primer on Tactical Asset Allocation: Stock market, aliens, farm, gold and bonds
Here at Logical, we’re so invested in Tactical Allocation models and multi-asset universe selection that we sometimes forget what many investors think investing is:
Picking stocks.
Just take a look at popular sites like Seeking Alpha—most articles are about some company’s stock that may or may not outperform due to various fundamentals or competitive positioning. These articles are often extremely well-researched and may even offer insights about a possible “winner.”
The problem is that all stocks are correlated to the market index. So even the best stock will stop growing during a market crash and will (perhaps excessively) bloom during a bull market.
That’s the first piece of the puzzle: Most stocks are correlated to the equity index. Once you accept that premise, you start to look at investing in stocks differently:
You have two betting venues: Jimmy’s stock lottery house and Bob’s up-or-down betting house.
In Jimmy’s lottery place, you pick a handful of stocks, bet your house, and hope for the best.
In Bob’s place, you bet on how much the index will go up—but you also get to leverage or de-leverage the index.
Now, if someone told you that historically Jimmy’s customers underperform the index and often go broke, while Bob’s laziest customers (i.e., “the index”) do 7% annually over the past 100 years and never go broke, which establishment would you choose to bet in?
But you’ll say: “I’ll never become a multi-millionaire in Bob’s place, while in Jimmy’s I could!” In Jimmy’s, you get to pick the next early-stage Tesla or Nvidia and become a billionaire!
Turns out, you can do that in Bob’s house too—because they offer leverage. If you really want to take on that much risk (where your chance of ruin is almost guaranteed), you can go to Joe’s and leverage the heck out of the index. As a bonus, you get to hire a dorky guy (or soon, a dorky AI assistant) to model that risk for you. That way, you’re better informed on how exactly you’ll get ruined!
Diversify to Survive
The second part of the puzzle comes from realizing you can’t put all your eggs in one basket. Even if you’re 90% certain you know a company—you worked there, you know the leadership, you understand their product and why it will work, and you’re sure it will be profitable—would you still invest 100% of your funds there?
What if there’s a war? What if the markets stop functioning? What if there’s a blackout—like the recent one in Spain, Portugal, and France—but for longer? What if Elon is right, and there is life in the universe, and they come attacking?
Ask that question on Seeking Alpha, and you’ll get the third most popular article writer shouting their favorite mantra:
Buy GOLD! Buy (physical) GOLD!
Gold… so what is gold?
It’s a metal. Right. It’s worth something… Right? It’s a universal store of value. No?
Can we eat a metal when aliens invade? Maybe not. What can we eat? Wheat? Meat? Vegetables? So maybe we invest in those. Grow a farm—with pigs, chickens, and all. Become investor-farmers and keep some gold coins stashed away, just in case.
What about running the farm? Run it on what? Electricity? So, we need a generator! And we need oil for that. So invest in some oil too! Photovoltaics could be another choice—but what if the sky goes dark when the aliens invade? Well, get a couple of solar panels anyway, in case we run out of oil.
So now we have food, oil, solar panels, gold, and we still have some stocks (for what it’s worth) from before the invasion. Are we good?
Not yet…
Here’s another scenario: Most of us understand that if aliens invade and we are alone, we’re probably dead no matter what we do. None of us alone can resist a coordinated attack—not even from birds (à la Hitchcock’s The Birds), let alone intelligent beings. The key word here is coordinated. We need others to mount a resistance. We need a group. A community. Maybe even (dare we say it!) a government!
So, how do we start it? Maybe we—and others—should buy a stake in that community. Finance it. The community can give us a piece of paper, and we can give them money to build what’s needed for survival and a better defense. Wait a minute… what is that piece of paper called again? An “I Owe You” paper? IOU? Let’s call it a bond. Maybe even a Treasury bond! Ok—let’s buy some of those too!
Oh my goodness! We are now a well-diversified commodity, stock, bond, and gold farmer—or, in finance jargon, an Asset Allocator.
If only we could now trade in pigs, oil, stocks, bonds, and who-knows-what with our neighbors, near and far—how cool would that be?
We could be TAA’s—Tactical Asset Allocators!
Tactical Asset Allocation
It isn’t just a strategy—it’s a mindset. It’s about seeing the bigger picture, managing risk, and adapting to whatever the world throws our way, be it market cycles or alien invasions.
At Logical Invest, we provide the tools, models, and strategies to help you think beyond stock picking and embrace a disciplined, diversified approach. Whether you’re allocating across stocks, bonds, commodities, or hedging with gold—we’re here to help you become a smarter, more resilient investor.
Ready to think tactically?
Explore our strategies, backtest your ideas with QuantTrader, and join a community that’s investing with clarity and purpose.
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The Logical-Invest team.