The Logical-Invest newsletter for July 2022

Important updates to all strategies and portfolios

We have major updates to our strategies. You can read a detailed description on what has changed, why and how that affects the website charts going forward.

  • We extended our #Cash (or STBS)and #Hedge sub-strategies so more strategies can use them.
  • We have added VTIP or ‘inflation protected cash’ to #Hedge .
  • We added the #Cash sub-strategy to the Universal Investment strategies and to the Enhanced Permanent portfolio strategy.
  • We updated Nasdaq and Dow components as well as added some new sector ETFs.
  • Since the #Hedge substrategy is part of all our strategies, all strategies have been re-optimized.
  • Historical backtests will differ from actual historical returns. starting July 1. Read why that happens.
  • Historical returns will still be available here.
  • All updates will be live starting July 1st.

Motivation

As the environment changes so do our strategies. As In real life trading, we periodically re-evaluate our models and assumptions. We retest them and adapt if necessary. This is not done often as it would mean we would be chasing ‘what has recently worked best’. Or in quantitative jargon we would be ‘over-optimising’. We do this every few years, or as often as necessary, especially when fundamental market changes are at play. Which is the case now.

Please take a few minutes to read about the changes.

Backtest results will not reflect actual historical performance

Since we have updated the strategies and re-optimised the strategy parameters (before you ask, yes, we have tools to avoid over-optimization), backtests on the site will not reflect actual historical performance up until July 1. In other words if you have traded the Nasdaq 100 strategy from January 1, you may have lost -5%. The backtested equity on the site may show a gain of +3%. That is normal and expected because the strategy backtests are based on the new (after the fact) rules.

This seems ‘not fair’ but it is necessary (read why) as these new rules determine the correct upcoming allocation for the coming month. The actual historical returns of the strategies are still on site:
https://logical-invest.com/app/historical

We are in a Bear market

The SP500 has plunged more than 20% since the January high and that puts us officially in a bear territory. To summarize, the major assets, year-to-date:

SPY -20%, TLT -21.9%, TIP -9%, EEM -17.2%. GLD is flat at -1.5%. In contrast XLE (Energy Sector ETF) is up 31.5%.

Bear markets are volatile, they may present good opportunities but they mostly bring higher risk of loss. Assume we look at the market through a simple filter. the 200-day moving average: When the SP500 is above it’s 200-day MA and when below the 200-day MA:

An additional metric worth drawing attention to is returns at the 20th percentile; -1.95% when closing above the average vs. -5.64% when closing below the average…  
In fact, if investors used this system in isolation (which they should not), history suggests that there is a significantly higher likelihood of a deeper decline when the index spends time below the moving average.

https://potomacfund.com/200-day-moving-average-strategy/

Invest accordingly and keep, at minimum, a rudimentary action plan.

Let us know what you think in our forum.

The Logical-Invest team.


Invest in one of our Top Strategies, register for our free one month trial

NameCAGR 1y ▼
Maximum Yield Strategy30.1%
Leveraged Gold-Currency Strategy29.3%
US Sector Rotation Strategy19.2%
Max Sharpe Portfolio14.5%
NASDAQ 100 Strategy13.8%

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