Time Machine – What if it was 2007, and you knew what was coming?

Time Machine – What if it was 2007, and you knew what was coming?
July 8, 2015 phillip_toews_1p9l0e9h

I often fantasize about going back in time so I can replay an event more to my advantage. Like curating a response to friends that, after the fact, makes me appear brilliant. Here is an investment time machine fantasy: Imagine this: It’s 2007. You know there is a real estate bubble, and you know there will be a crash, so you modify portfolios to eliminate losses from the oncoming implosion. Now fast forward to post collapse. You’ve avoided losses. You’re a hero. And you have the tremendous ego boost of having called it right, when almost no one else did.

Of course, that is just a fantasy, right? What if there was a chance for a 2007 do-over?

What do we know about the markets now? We know that we’ve now experienced the fourth longest bull market in U.S. history, lasting over six years. We know that the total value of stocks relative to GDP is higher than at any point in the past 60 years, with the exception of 1999 and 2000. We also know that we have experienced unprecedented Fed stimulus, attempting to keep asset prices high. And finally, we know that every decade for the past 100 years has had at least one bear market with losses of nearly 20% or more.

On average, each decade has experienced two declines with an average loss of 37%. We haven’t had a bear market this decade, and it may be overdue (see table above).

Is this your chance for a do-over of 2007, with no time machine required?

Currently, investors are moving toward taking more market risk. Recency bias causes us to believe that markets will continue to move higher, because they have been moving that way. Also as investors, we are also perpetually in a state of denial about risk. We know that statistically, odds show that losses may be forthcoming, but we refuse to believe that these odds apply to us personally (think gambling)

Fantasy Fulfilled

Toews strategies achieved that investment time machine fantasy…the first time. Our systems initially exited the stock market in late 2007 but re-entered before finally exiting in Fall 2008, remaining in cash through most of the ensuing market collapse. We re-entered markets in mid to late March 2009 and participated in a majority of the market rebound that year.

If you weren’t a Toews investor for that event the first time around, stay tuned, and remain patient (a word my four year old (and investors?) fully comprehends, but sometimes has difficulty actualizing). Once markets advance into overvalued territory, as we believe they have, it’s just a question of when, not if, the next bear market will arrive. Once the next bear market begins, our system is poised to allow you to fulfill your 2007 time machine fantasy.

Toews Set to Exit Assets if Declines Ensue

Toews begins the quarter fully invested in U.S. and International Stocks. Our Dynamic Fixed Income models that invest in High Yield and Aggregate Bonds moved to a protective stance in May and June and successfully avoided modest declines through the end of the quarter. We also moved Developed International Stocks to a defensive position during the quarter and we are currently partially invested as the quarter ends. The threat du jour relates to Greece. Should U.S. stocks decline, even slightly, our models will exit, placing us in a broadly defensive position across our portfolios.

The path to navigate these markets and address possible significant declines is straightforward but requires constant vigilance: 1) stay committed to equity markets, as equity is historically the best performing asset class to help protect against inflation and 2) hedge your portfolios against losses. Both are pillars on which the Toews system is built.


Prior performance is no guarantee of future results. There can be no assurance, and individuals should not assume, that future performance of any of the portfolios referenced will be comparable to past performance. There can be no assurance that Toews will achieve its performance objectives.

This commentary may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.

This commentary is intended to provide general information only and should not be construed as an offer of specifically-tailored individualized advice. Please contact your investment adviser, accountant, and/or attorney for advice appropriate to your specific situation.

This document refers to the performance of the majority of Toews portfolios to illustrate the effect of Toews management on U.S. and intl. stocks and high yield bonds. Performance of individual accounts varied based on the client’s investment risk profile and their specific investment funds. For your individual account performance, please refer to the enclosed quarterly statement or the quarterly statement recently sent to you. In addition, not all model portfolios were referenced in this letter. It is not, nor is it intended to be, a comprehensive accounting of Toews asset management. There are other portfolios that Toews manages that performed differently than what is referenced in this letter. For a complete list of GIPS firm composites, their performance results and their descriptions, as well as additional information regarding policies for calculating and reporting returns, please go to www.toewscorp.com. Toews Corporation acts as the investment advisor that implements the asset allocation and models for each of the portfolios. Investors cannot invest directly in an index.