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Understanding “Wolf” and “Eagle” markets, in addition to the traditional “Bull” and “Bear”, and how select investment methods tend to perform in each environment.
Every investor knows there are two primary financial markets, so-called “Bear” and “Bull,” and that historically, these alternate—the former characterized generally by falling prices; the latter by rising prices.
Yet what if these only tell part of the overall story? What if there was a method to apply that could drill down even further, creating a more comprehensive lens to analyze and identify trends, opportunities, and even implications?
New York-based wealth management firm 4Thought Financial Group has developed such a system—breaking these two main traditional markets into four, and creating a whole new way of investment management.
It’s called “Multi-Method Investing,” the culmination of years of analytics and historical financial market research, and 4Thought Financial Group Chief Investment Officer Jesse B. Mackey has made its full, in-depth explainer available via its website and as a free, downloadable white paper.
Consider this post, therefore, a brief but helpful outline summarizing some of this new methodology’s fundamental principles and key points.
What Is Multi-Method Investing?
Let’s begin with the basics. Multi-Method Investing is the simultaneous utilization of four distinct investment management methods in an attempt to improve the probability of achieving investors’ financial goals. As we explain, both proprietary and third-party research has proven that there is no one universal method for every scenario. Rather, each singular approach is well-adapted to particular market environments.
Thus, applying the most effective components of these various methods—and diversifying at the level of investment method—maximizes overall portfolio efficiency.
The four pillars of the Multi-Method Investing include:
- Liability Driven Investing
- Strategic Asset Allocation
- Opportunistic Investing
- Selective/Concentrated Investing
Breaking the Mold: Wolf & Eagle
At the heart of 4Thought Financial Group’s strategies resides the establishment of two new financial categories to describe market environments: Wolf and Eagle. Both are subcomponents of the traditional Bull market, and each have respective links to the aforementioned four pillars.
A reassessment of the available 68 years of price history of the S&P 500 Index, from January 1950 to December 2017 (using the S&P 500 price return index), reveals logical links and statistical correlations between investment methods and corresponding market types:
Liability-Driven Investing may have the potential to outperform the other three methods during a Bear market.
Strategic Asset Allocation may have the potential to outperform the other three methods during a Bull market.
Opportunistic Investing may have the potential to outperform the other three methods during a Wolf market.
Selective/Concentrated Investing may have the potential to outperform the other three methods during an Eagle market.
Why Labelling Markets Either Bear or Bull Is Likely a ‘Gross Oversimplification of Financial Market Realities’ & Several Key Takeaways
- Since 1950, Bear markets have accounted for 01% of the history of the S&P 500 Index. Bull markets have accounted for the remaining 82.99%.
- Separating Wolf and Eagle markets as subcomponents results in Bear and Bull markets still comprising the same percentages—17.01% and 82.99%, respectively—but also discovers that Wolf markets account for 22.46% and Eagle markets an astounding 35.54%!
- If a mutually exclusive definition of those aforementioned four market environments is applied, Bear markets account for 17% of market history, Bull markets 24%, Wolf markets 22%, and Eagle markets 34%—with 3% inconclusive.
“This means that Wolf and Eagle markets account for a very large proportion of market history,” he explains, “regardless of whether the ‘mutually exclusive or [so-called] ‘overlapping’ definitions are used (even more so with the “mutually exclusive” approach). It follows that if investment assets, strategies, or methods can be found that can perform well in these two newly identified market environments, then perhaps they should be utilized as substantial components within an investor portfolio (possibly in very large proportions, depending on the capital allocation approach).”