It’s clear that prices in the equity markets are swinging wildly, with a downward trend that has been lasting weeks. Consider this- last week marked the first eight-week losing streak for the Dow since 1923, while the S&P 500 is in a seven-week losing streak, the worst since 2001. The Nasdaq also absorbed its seventh negative week in a row, which is the first time since March 2001.
This market volatility calls for an overview of the investment philosophy at FourStar, especially as we have maximum protection levels now.
The FourStar Portfolio Protection Plan is designed to take increasing measurements of market evidence and trend indicators, to slowly reduce risk to investors during times of market volatility, like we are experiencing now. The plan is designed to shift to maximum protection in a series of four moves to provide full portfolio protection. Likewise, when market evidence indicates that measured risk taking is being rewarded, another series of four moves will be taken for the FourStar Portfolio Protection Plan to become fully invested again.
According to our work, right now is a time for maximum portfolio protection levels.
Financial markets tend to slowly rise in times of normal economic conditions, which has historically happened about 85% to 90% of the time. During the other 10% to 15% of the time, financial markets are in correction, or in other words a downward moving trend. Some of the downtrends are relatively mild 15% to 20% declines and are simply called “corrections”. Other downtrends exhibit sharply declining panic conditions and result in markets with drops of 30% to 50% or more. These declining conditions are called “bear markets”.
The FourStar Portfolio Protection Plan cannot eliminate risk, but it does attempt to avoid the “bear markets” phase as much as possible. Corrections of between 10% and 20% can be made up by rising markets in the near term, which is basically within a few years. Bear markets, however, cause 30% to 50% declines and may take a full decade to recover from. This is what we are trying to avoid!
As such, for now we stay at maximum protection levels.
As signals to redeploy the safe resources back into the markets appear, we will execute on the four moves of the FourStar Portfolio Protection Plan as needed. The process may take months or over a year and is dictated by market movements and volatility. So, stay tuned and we will keep all our investors informed.
Brian Kasal, CEO and CIO
FourStar Wealth Advisors LLC
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