All Risk – No Return

Dow Industrial Average

The Dow Jones Industrial Average (click chart above to enlarge) traded today below the critical 18,000 level. That leaves the index unchanged since December 5th 2014. While sideways markets are always frustrating for most investment styles, the good news is that markets tend to alternate between trending and consolidating environments. Therefore, it is likely that a trend will emerge from this flat market environment providing opportunities for profit for those positioned properly.

The past two years has produced zero price appreciation in the Dow, but has delivered plenty of downside volatility for those investors who have been drawn into the passive buy and hold approach by seven plus years of rising US equity prices. These investors have assumed all of the risk with no return to show for it. A resumed uptrend would reward their patience while a new bear market will crush their portfolio as people quickly head towards the exits.

The AW Portfolios are primarily a trend following strategy that adapts to changing market conditions. The past two years have not provided any lasting trends to follow, but our approach will position us to profit from a new trend in either direction. This differs from the passive strategy that relies on prices always rising while being constantly exposed to all of the market risk. Our goal can be summed up by the simple phrase – participate in bull markets while protecting in bear markets.