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Why Tactical Portfolio Management? Part I

Why Tactical Portfolio Management? Part I

| January 14, 2020


A long-term perspective of the Dow Jones Industrial Average since 1896 reveals that there are extended periods of time in which the U.S. equity market will trend generally upwards (secular bulls), and also lengthy periods of time when the market will instead stagnate or move generally lower (secular bears). There have been eight such alternating cycles since 1896, with each averaging 14 years in duration. If we assume an individual begins to accumulate meaningful wealth with which to invest around the age of 40, and has a life expectancy of about 85 years, he or she will likely experience at least three of these cycles during their investment lifespan. With this in mind, it is important to have at one's disposal strategies that are effective in both generally rising (bull) markets and falling (bear, or "fair") markets.

One methodology that has existed since the late-1800's and has proven effective in both kinds of markets is that of Point & Figure analysis. Its first proponent was Charles Dow, also the original editor of the Wall Street Journal. Charles Dow was a fundamentalist at heart, yet he appreciated the merits of recording price action and understanding the supply and demand relationship in investments. The Point & Figure methodology that he developed has evolved over the past 100 plus years, but remains at its core a logical, organized means for recording the supply and demand relationship in any investment vehicle.

As both consumers and investors, we are innately familiar with the forces of supply and demand; it is, after all, the first subject introduced in any Economics 101 class, and we experience its impact regularly in our daily lives. We know why tomatoes in the winter are not particularly tasty, do not have as long a shelf life, and are paradoxically more expensive than those sent to market in July. What many investors are slow to accept is that the very same forces that cause price movement in the supermarket also trigger price movement in the financial markets. When all is said and done in a free market of any kind, if there are more buyers than sellers willing to sell, the price will move higher. Conversely, if there are more sellers than buyers willing to buy, the price must move lower. If buying and selling are equal, the price will remain roughly the same. By charting this price action in an organized manner we hope to ascertain who is winning the battle: sellers or buyers, supply or demand. By having the ability to evaluate changes in the market, we have taken the first step toward becoming responsive to both bullish and bearish periods.

Next week we will continue this discussion of Tactical Portfolio Management with Part II. It can be viewed in its entirety on our website (Investment Philosophy).

Until next time, Cheers!



Investing involves risks and the potential loss of principal. No strategy can assure success or protect against loss. Past performance is no guarantee of future results.