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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.
Inside the Multi-Method Investing® framework for investment management that we use at 4Thought Financial Group, one of the 4 methods of investing is called “Opportunistic Investing”. Based on our own research and experience, this method is particularly well-adapted to a market environment that we call a “Wolf Market”.
Wolf Markets can be qualitatively defined as a period of heightened market volatility without any clear Bull or Bear trend. Quantitatively we can define it as any period of 10% or greater downward price correction (but less than 20%) plus the recovery period, starting with the initial peak price and ending when the initial peak price is reached again. Based on our proprietary research, there were 31 Wolf Markets in the S&P 500 from 1950 to 2020 (in 71 years). These accounted for approximately 24.38% of the history of the S&P 500 Index. Given the prevalence of this type of market environment, if there’s a way to take advantage of it, investors might be wise to pursue this (with specialized professional help).
Opportunistic Investing strategies (based on our definition) are mainly focused on taking advantage of asset class market timing opportunities on a largely unconstrained basis, and not necessarily on opportunities related to individual companies or stocks. Importantly, some opportunistic investing strategies may be specifically designed to capitalize on volatility.
Based on our research, Opportunistic Investing may have the potential to outperform the other three methods of investing used within the Multi-Method Investing framework (Liability-Driven, Strategic Asset Allocation, and Selective/Concentrated) during a Wolf market. This is because in an environment of heightened volatility, strategies that are specifically designed to capitalize on this volatility at least have the potential (if not a higher probability) to outperform strategies that resign themselves to simply moving with the market and make no attempt to capitalize on it at all (which is the case with the other 3 methods). For more information and statistical data on this subject, see the whitepaper on our website entitled “Bull, Bear, Wolf, Eagle Markets and Multi-Method Investing”.
When you as an accountant contract with 4Thought Financial Group as a paid referral of clients for investment advisory services (which is an option for CPAs within the ethical and fiduciary codes of the AICPA and the laws of the SEC), you make Opportunistic Investing available to your clients (in most states). We have a third-party verified (audited) performance track record of over 10 years in this space. So the next time you hear a client gripe about market volatility, make sure you contact us. We can help.
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