How Does the PortfolioWisdom Methodology Work Over Time?

How does it work?

In one way or another, almost every person asks this question at some point in our conversation, when they see the chart of how well my asset allocation theoretical backtests have performed versus the individual components of my portfolio models. I’ve described it lots of ways, but here is an interactive time-lapse chart of the Portfolio Wisdom 12 Asset Growth Model asset allocations from 1994-2011.

Here are the steps you must follow to see the changes properly displayed. Starting clockwise at the top of the chart below:

  1. Along the top of the chart, toward the right corner, click on the middle tab signifying a bar chart.
  2. Along the right side of the chart, near the top, click on the COLOR drop down selector and choose “UNIQUE COLORS”.
  3. Along the right side of the chart, just above the middle, check all of the asset classes shown.
  4. Along the bottom of the chart, click on the ORDER drop down selector, and choose “ALPHABETICAL”.
  5. Along the bottom of the chart, near the left corner, there is a small PLAYBACK SPEED arrow. Click and pull it down to the slowest setting.
  6. Along the bottom of the chart, at the left corner, click on the “PLAY” arrow.
  7. Enjoy! Notice how the allocations, especially CASH changed during and after the crash at the end of 2008!

Here is the Portfolio Wisdom 12 Asset Conservative Model

If you want to open this gadget in a separate browser window, use the following link and navigate to the spreadsheet tabs named Growth Model 1994-2011 and Conservative Model 1994-2011. The actual allocation data produced by the Portfolio Wisdom algorithms for each week during 1994-2011 is shown on the other sheets.

PortfolioWisdom Conservative Model Allocations from 1994-2011

Now Comes the Hard Part

Those of you (my clients) who track your portfolios carefully know that, every day I’m able, I upload all of your daily portfolio transactions to Morningstar so that you can always know the composition, the value and the behavior of your portfolio across all of your accounts, wherever they may be. Of course, others just check on your portfolios when I send out quarterly performance reports, which may be much less stressful!

Anyway, the process of monitoring your portfolios every day gives me a feel for the markets, and, right now, I have this feeling that the equity markets are weakening. Most people would naturally ask me, “Then Dale, if you think stocks are going down, why don’t you sell? Why did you go back to full investment in your portfolio models last Monday?”

Ahhhh grasshoppa, I’m glad you asked 🙂

Firstly, I may be wrong in my perception of market weakness. Some development may cause stocks to leap up tomorrow. Secondly, even if I’m right, other assets, like bonds, gold, or real estate may rally commensurate with the drop in stocks. Thirdly, even if I’m right, I don’t know how far stocks will drop and when stocks will rebound. This type of market demonstrates the value of the methodology I’ve developed. We don’t try to make money making bets on our predictions of the future. That is a losing game (although many will claim they can see the future because of all their PhD’s when they ask for your money).

Instead, we will do the more difficult thing, and expect to be more profitable in the LONG RUN. We will stick to the proven plan.

Thanks for your trust,


Back to the Model

I was out of town last week on a mission trip to inner-city Memphis with our church Middle-School group. After reviewing the updated portfolio models, I’m returning to the full investment in the models appropriate to each client.

While I was gone, stocks went up, but bonds and gold fell sharply, more than offsetting stock gains in most accounts. So, cash was actually a better place to be than in the model for a few days, as volatility (and risk) in bonds increased.

Since we are not in the business of trying to predict future directional movements in the markets, I am returning to my standard methodology for client accounts.

Hope everyone had a great Spring break!

Still Cautious

Well, a couple of weeks ago I had to laugh at the bold predictions of another 15% upside in the S&P500 this year. Since then, the S&P500 dropped sharply and has rebounded back near the highs of 2012 and about even with the highs of 2011. However, bonds have dropped down near the lows of the range they have inhabited for 3-4 months. So, at this date, our portfolios are little changed… right near the highs of 2012.

It is at times like this that I’m grateful I no longer feel the need to predict the future in order to make good investment decisions for my clients (like I used to). Of course, many pundits make a lot of money by making a huge number of predictions. When a few turn out to be right, they publicize those few (ignoring the bad predictions), and gull a new group of people into becoming their clients.

I am remaining cautious because risk (volatility) seems to be increasing for a bonds, gold, and now equities as well, from very low levels. To use my boat out on the water analogy, the waves are just starting to kick up a little and the ride is getting just a bit choppy. So, I’m continuing to hold a fair amount of cash, while investing the balance according to the portfolio models appropriate to my clients.



I had to laugh

I had to laugh when I saw that, in conjunction with the latest vote in Greece (and riots in the streets), there were articles and pundits predicting a 20%-30% gain for the equity markets in 2012. Where were these people 4 months ago at the end of September, 2011? They must have been predicting another 10%-15% to the downside.

To be sure, I’m not saying they are wrong… I don’t do predictions as a part of investing your money. However, I am saying that risk is beginning to increase. Bond volatility has begun to grow over the last few weeks. Although equity volatility has continued to decrease month over month, it has almost stopped decreasing, and is at a low comparable to … you guessed it … previous highs in the equity markets.

Could markets go higher… even much higher? Absolutely. Will we bet on that over and above my methodology? Absolutely not. As I write this post, we are near the equity highs of the day on Monday morning after the “good” Greek vote.

I am raising some cash in our portfolios, while staying with the methodology allocations for the amount that remains invested. Have a great week.

The Most Important Thing

Hello Everyone,

As you know, I’m almost always reading one or two books. For those interested in learning about the financial markets with something that is very readable and not too technical or mathematical, I highly recommend The Most Important Thing by Howard Marks.

Here are a few brief nuggets of wisdom:

“The road to long-term investment success runs through risk control more than through aggressiveness. Over a full career, most investors’ results will be determined more by how many losers they have, and how bad they are, than by the greatness of their winners. Skillful risk control is the mark of the superior investor.”

“Rule number One: Most things will prove to be cyclical.”

“Rule number Two: Some of the greatest opportunities for gain and loss come when other people forget rule number one.”

“Nothing goes in one direction forever. Trees don’t grow to the sky. Few things go to zero. And there’s little that’s as dangerous for investor health as insistence on extrapolating today’s events into the future.”

Thanks everyone, I’ll leave you with those thoughts.

Have a happy February


What does Food have to do with PortfolioWisdom?

Hello Everyone,

Our friend Cindy Landham has been of great value to my wife Sue and me over the last 4-5 years through her work at

Here is an interesting bit of information she sent me and I thought I’d pass it along…

This is how your body likes to work:          (From the Tennessee Heart & Vascular Institute P.C.):

  • The body wants between 200 and 500 kilocalories of fuel every 2 to 4 hours. When we eat over 500ish at one sitting all the extra kilocalories will be stored as fat.
  • While you sleep your body only needs 40 kilocalories an hour; this night-fuel comes from the liver and not your intestines. Any food eaten less than 2 to 3 hours before sleeping will be stored as fat.
  • Foods that are highly processed enter the blood stream so fast that insulin is over-released. This turns on the fat storage system in your body so these foods are more easily stored as fat.
  • Foods that your body actually get to grind up and slowly digest are satisfying and effective for your health. [For some ideas see Low Glycemic Index Foods: High Fiber foods:  Other: ] These are NOT diet foods. These are foods your body knows what to do with because it was made to live on them. Slowly add a few at a time until you are around 80% real food and enjoy feeling frisky!

Let’s get well!


Think a new way to live a new way.

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2012 … So Far, So Good

Hi everyone,

As you know I don’t feel any big urge to continually pontificate on the markets, so I don’t have much to say this week except, so far, so good. The markets have been kind to our portfolios so far, and, as long as volatility continues to decrease (see my previous posts from October/ November 2011) things should continue along. Don’t pay too much attention to the news or the financial channels in the meantime.

On another note, my Mom and my Dad both had major surgery this morning, so let me apologize in advance if I’m not as instantly responsive as usual.

Take Care,


2011 Q4 Performance Reports are Available

Happy New Year Everyone!
The Q4 Performance Reports, which include full-year 2011 numbers, are available online at Morningstar through the client link at

We are completing  a good year in a very tough market, and I’m grateful for the way we performed.

I’m also very optimistic about 2012.  Please call me with any questions.