Given the brutal start to the markets in the first three weeks of 2016, we thought it a good time to check in with the team at New Harbor Financial. We have had them on our podcast periodically over the past years as the market churned to ever new highs, and have always appreciated their skepticism of these liquidity-driven ""markets"" as well as their unwavering commitment to risk management should the party in stocks end suddenly.
So, how is their risk-managed approach faring now that the S&P 500 has suddenly dropped 8% since Christmas? Quite well. Their general portfolio is flat for the year so far — evidence that caution, prudence and hedging can indeed preserve capital during market downdrafts.
We've invited the New Harbor team back on this week to hear their latest assessment on the markets, as well as how they're approaching their portfolio positioning moving forward:
We spend a lot of time talking about position sizing. Right now we have very little in the stock market. We never cheer for a crash in the sense that we know a lot of people would likely get harmed in such a scenario, but we also spend our time assessing reality and probability. The likelihood of probability for a crash certainly has never been non-zero, but it has developed a greater likelihood than it had even just a few weeks ago. There has been a notable sentiment change.
I'd like to point out: we're not even a month into the year and we have already clawed back over two years’ worth of gains in the stock market. Even if you look at the S&P 500, which has been the most lofty because of its capitalization-weighted nature, where we are at right now takes us all the way back near the end of 2013.
There is a set of conditions — deterioration of breadth, deterioration of market internals, a sudden shift of investor mindset from speculation to conserving capital — when these kinds of things are present, at least history says it almost does not matter what the central banks do. In fact, when they get more and more aggressive in those kinds of environments it may just convey greater desperation and panic on their part. Investors run to the sidelines even more quickly. It would take a lot right now in changing those things for us to want to put down our defenses in any material way due to central bank desperation at this point.
This is a time for holding things like cash, holding things like very short-term high-quality treasury bonds, having some hedges on. Even in a crash scenario at some point this kind of strategy could actually have positive, albeit modest, additive value to an account. Sometimes the simplest thing you can do is the best way to avoid getting harmed in the crash: that's holding cash and just staying out of harm’s way. It happens to be one of the hardest psychological things to do, but it is one of the most effective ways.
Transparency note: As a result of our public endorsement, Peak Prosperity has a commercial relationship with New Harbor. The details of this relationship are clearly presented in writing during the referral process — but the punchline is, our relationship does NOT result in any increased fees to those who become clients.
If after listening to this podcast, you find yourself interested in connecting with Mike, John, and the rest of their team to learn more about their advisory services, please use the form here to do so.
cheers,
Adam
It should go without saying: this discussion should NOT be construed as individual financial advice by those listening to it. The content should be taken as informational and educational in nature only. Investment advice must be tailored to your specific personal situation (which we and our guests are obviously unaware of) and should be obtained directly from a financial adviser you trust. Before acting on any of the statements made in this podcast, we advise you do just that.
Click the play button below to listen to Chris' interview with New Harbor Financial (32m:28s)
by kaimu