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     Warren Buffet once said there are two rules in investing. Rule #1 is "never lose money." Rule #2 is "never forget rule #1." There is a difference between attempting to time the market and using strategies to attempt to reduce risk. No person or computer can buy at the exact low and sell at the exact high. The point of using various tactical strategies is to try to reduce large losses in the event of a long term downtrend. It doesn't mean accounts can't lose.

     There are many different tactical strategies. Some have no correlation with the regular markets while others attempt to correlate when markets are going up and not correlate when they decrease. To understand "correlation" click here.

     The graph below* shows a simple method of using a 100 day moving average (aka "trendline") to try and reduce risk. The concept involves checking an index against the trendline on a regular basis. If the stock market is below the moving average on the "check day," one sells stocks and moves to bonds or cash. When it sits above the trendline on a "check day," one remains in stocks or buys back into the market. As one can see in the first graph, if this simple model had been used during the 2008 - 2009 market crash, much of losses and the volatility of the market would have been eliminated. The second graph shows the filter over the last couple of years. Please know this does not guarantee a profit.


     This is meant to be a rudimentary discussion of tactical strategies and is not a complete description. Tactical strategies can lose money. All investing involves risk.

*The graph represents back-tested data derived from the retroactive application of a model developed with the benefit of hindsight. There are inherent limitations in showing data derived from the retroactive application of a model. Unlike actual performance, these results may not accurately reflect the effect of certain material economic or market factors, and therefore, results may be over or under-stated due to the impact of these factors. Since the graph does not represent actual trading, it is unknown what effects these factors might have had on our decision-making if it were actually managing the client’s money during the entire time period. There is no guarantee that positive results can be achieved using the model in the future. Losses can be incurred.

Advisory services and securities offered through Centaurus Financial, Inc. a registered broker/dealer and registered investment advisor,
member FINRA and SIPC.
1186 E. Grand Ave., Arroyo Grande, CA 93420
Phone: 805-473-6679 Fax: 805-473-0751
CA Insurance License #0703952