What every investor wants.

What every investor wants.

I was recently asked to speak at a conference hosted by one of the largest financial publishers in the industry.  There were no restraints placed on me….I could talk about anything within my area of expertise.

I mulled multiple possibilities.  Since I didn’t know beforehand the level of audience sophistication, I knew I should try to keep the presentation fairly basic.

The challenge then became, how in twenty-five minutes can I share everything an investor needs to know about rules-based investing?

And more importantly, why should they care?  And why should you care?

As I was preparing my notes and outline, one benefit seemed to stand out more than others.


It was the single word on my second slide.

For me at least, one reason we use models is that it creates a certain degree of predictability. (I will discuss mathematical expectancy in greater detail in a future post)

I think that one reason that people don’t invest who should, is because of the uncertainty that often surrounds investing and the emotional angst caused by the uncertainty.

There are two types of data.  That which is known, i.e. the past; and that which is unknown, i.e. the future.  Everything else is just noise.

None of us are diviners of the future.  Thus all future market data is unknown.  (Which is why “forecasts” are worthless despite investor fascination and interest in them)

Traditional investing advice such an indexing and buy and hope have you accepting the market’s future returns regardless of the outcome.

It’s random.

And it is highly unpredictable.

And psychologically, deep down, there is something unsettling about this.


What if, we placed our focus on strategy.  On process.   After all, that is the only thing we can control.

What if our process managed our major concerns? Meaning…it had the ability to always adapt to the best opportunities at any given time.    And if the “best opportunity” at the time was to be defensively positioned on bonds or cash, so be it.

In essence, we manage the unpredictable stream of future market data with a clearly defined, tested, researched, and predictable process.

How many investors have watched this market from the sidelines waiting for a pullback for better entry?   Thinking all along that “it was too high”.

If however, investors knew that it did not matter…that the investment strategy would protect them should the need arise…then investors could and should invest anytime capital is available.

Unfortunately, many investors approach investing as an all or nothing proposition that is rigid.  And this is where the internal psychological battle begins.   Questions like” what if I’m wrong” or “what if the market declines” and “what if this is a mistake?” take command.  And the result is often paralysis that results in inaction.

Markets adapt and change.  Why shouldn’t your portfolio be allowed to do the same?

Strategic allocation approaches, indexing, and buy and hope do not adequately address the element of predictability.  Consider the following table of historical returns for the market.  Notice that even in 20 year periods of time that the range of returns is from 1.9% to17.9% for the S&P 500.

Does that seem predictable?

And it’s worse the shorter your time frame.

The financial industry is always quick to say that every 20 year period in the market has been positive.  True.  But what it doesn’t mention is the possibility that half of the returns will be below the 20-year average return of 10.1%

If you were estimating on achieving an “average return” to reach your financial goals, there is a 50% chance you will fail.  That after all is the simple mathematics of an “average”.

I ask again if any of this makes investing seem predictable?

What if your timing is unlucky and you earn well below the average?   Success becomes based upon luck and hope that the return sequence delivers what is required.

So we come back to focus on process.  To make sure that our portfolio is allowed to breathe.  To make sure that our portfolio can adapt to new market regimes.

This is why I am so passionate about rules-based investing.  It allows us to program in the ability for our portfolio to maximize profits when times are good and protect our capital when markets start to head south.  Simple mathematical formulas can replace our emotional involvement and provide a predictable process to manage the market, no matter what it throws at us.

In my next post, I will discuss how some of the tools we use can help create an element of predictability.

Three Investment Lessons from a Baseball Legend

[vc_row full_width=”stretch_row_content”][vc_column][vc_single_image alignment=”center” image=”262″][/vc_column][/vc_row][vc_row css=”.vc_custom_1453148015986{padding-top: 60px !important;padding-bottom: 60px !important;}”][vc_column][vc_column_text]Growing up I was a baseball fan for as long as I can remember. The Reds and the Mets were my early favorites but once my parents set down roots in the midwest I became the Cardinals fan I remain today.

Despite team favorites, there was one baseball player that all fans liked and his name was Tony Gwynn.
Tony Gwynn was one of the best pure hitters of all-time. He won the batting title 8 times and a .338 lifetime batting average (for those non-baseball fans, it was the highest career average for any player who started after WWII).

And when Tony Gwynn was eligible for the Baseball Hall of Fame – he got in on the first ballot (not that there was any question he would get in on the first try).

This past weekend, Tony Gwynn passed away at the age of 54 from salivary gland cancer and the baseball world is mourning.

So what does a baseball legend have to do with successful investing?[/vc_column_text][vc_video link=”https://vimeo.com/87701971″][vc_column_text]


For Tony Gwynn, it was about getting base hits. He didn’t try to hit a home run – he would just beat you with singles and virtually never strike out. Sure, the home run hitters get all the glory, but Tony didn’t care about the glory, he beat you with the singles. And it was those thousands of nice and easy base hits that added up to a hall of fame career.

Investing Takeaway: When it comes to investing, what makes a long term winning track record is not the occasional 10 bagger that you are lucky to find yourself owning. Rather, it is the small but consistent wins that compound over time…the dividends collected, option premium earned, the costs saved, and the consistent profits that can be earned from trading a system that provides positive mathematical expectancy.
Show me an investor who has blown up his portfolio and I can guarantee you that it was because he or she was swinging for the fences…always trying to hit the ball over the fence and paying little attention to managing risks or capital control. As in baseball, small consistent wins can keep you in the investment game for a lifetime.


Tony played for twenty years. By knowing what he was good at and focusing on that one thing (base hits), he played professional baseball for two decades. He knew by just getting hits, it will help his team win and he wouldn’t be the “flavor of the month”. The final result was 3,141 hits over twenty years.

Investing Takeaway: Successful investors find what they are good at and once they do, they stick with it. A successful investment approach is one that meshes with an investor’s personality and goals. For some investors, it might be the intensity of day trading and the idea of going home flat every night that works. For others, it might be growing a portfolio of dividend achievers and letting compounding do its magic over time. Regardless of where you fit within the spectrum, the key is to find an approach that fits and to stay with it.

Ideally, I want an approach that can capture most of the upside while protecting me from most of the downside.

For me, systematic, rules-based investing is the approach that I am most comfortable with. It keeps my emotions in check, it provides discipline, it manages downside risk, and it automatically adapts to the ever changing markets. I don’t have to worry about guessing what the markets are going to do next. I know that my models will adapt and that’s all I need to know.

Investors who are constantly chasing systems and investment fads typically make no progress and are often near dead broke. There is no Holy Grail and no Get Rich Quick Scheme…give it up before its too late if you find yourself getting caught up in this.


In a era where professional athletes hop from team to team for a bigger paycheck, Tony Gwynn was loyal. He played his entire career for ONE team, the San Diego Padres. The relationship he had with San Diego fans led to the team literally building a statue of Tony at the ballpark!

Investing Takeaway: Once you have found the approach that works for you, follow it day in and day out. Yes, I know that can be boring. Within all us is the desire for excitement and for change….but when it comes to investing, the more times we can repeat a process that has positive mathematical expectancy, the more likely we will be successful. Don’t believe me? Think about a casino. They know and they have built their lavish buildings on players staying at the table, hand after hand, roll of the dice after another. The problem here though is they have the edge and you don’t. In investing, it is easy enough to find an approach (Portfolio Cafe, cough, cough) that gives YOU the edge. You simply have to be willing to stick to the discipline of following a system. Find what works and become loyal to the process.

They broke the mold when they made Tony Gwynn, both the baseball player and the man. And there are many lessons to be learned by looking back and reflecting on his life.[/vc_column_text][/vc_column][/vc_row]