On July 1, 2008 our firm launched a new investment strategy, the Global Trends Strategy. The investment approach is simple:
- Identify sustainable trends.
- Invest in those trends via ETFs.
- Adapt quickly when those trends change.
- When unable to identify a sustainable trend, wait in cash.
The strategy is designed to participate in rising trends and be on the sidelines when there are none. The strategy is working! On September 18th the portfolio was 90% in cash. The Dow closed at 11020 that day. By October 16th the portfolio was 100% cash and has been ever since. As I write this the Dow is now trading around 8500. In other words, the market is now 23% BELOW the level at which we began selling our positions. Our risk management rules told us it was time to be in cash. The decision to be in cash has protected us from the painful crash in the market as well as “the worst week ever“.
On October 3rd (with the Dow at 10325) I wrote “Cash Is King…For Now“. My main point with that post:
If you’ve been executing a trend following strategy, then by now you should be in cash and you should stay in cash until new trends are established.
Cash is still king for trend followers that are looking for sustainable rising trends.
[DISCLOSURE: Clients of Freedom Financial Solutions, LLC that are invested in the Global Trends Strategy currently have a cash position of 100%.]