Barbell Strategy


Let us continue our discussion on Momentum strategy. We started by introducing MWM (Mystic Wealth Momentum). A 20 stock portfolio selected on the basis of price and earnings momentum with a trend following overlay. You can know more about it here.


Then we talked about Trend and momentum filter on broader indices rotating between cash/bonds/gold and equity index. You can re read that here and here.


We also established the robustness of this simple strategy by running it on a mutual fund. You can read about our backtest on Blackrock microcap fund here.


Now lets bring this all together.


As you must have noticed all these strategies have their own character, their own flavor and almost a different personality. While all of them have much lower draw-down compared to conventional buy and hold, within the subset the variance is HUGE.


While MWM is a WILD RIDE with all its ups and downs but a PERFECT instrument to capture the BULL RUN whenever it happens.


Rotation on Index is a SLOW but SURE way of compounding your capital without the menace of a draw down.



Both have their positives and their negatives.


Positive of MWM is that it is the PERFECT instrument to ride a bull run, IT nailed down the 2014-2017 market with stellar performance.

Negative, flip side of the same coin is that there are NO FREE Lunches. A 2018 like year will result in draw-downs. When you ride a lion, it can bite and bite really hard.



Positive of MWT (Mystic Wealth tortoise) Rotation strategy is that it is tension free, sans stress, minimal churn slow compounding machine with half the drawdowns of buy and hold.

Negative is that it is a SLOW compounder, more to preserve capital and not generate it. And also in case of retracement free unidirectional bull market, it will lag the indices.




Now that you have an idea of the nature of the beast, let me introduce the concept of BARBELL Strategy.


I heard of this strategy via Nasim Taleb. What is it??



Barbell is an investment strategy applicable primarily to a fixed-income portfolio, in which half the portfolio is made up of long-term bonds and the other half of very short-term bonds. The “barbell” term is derived from the fact that this investing strategy looks like a barbell, heavily weighted at both ends and with nothing in between.



While the definition is for fixed income, the applicability is UNIVERSAL.







Essentially you get to decide your RISK TOLERANCE. Its like putting Salt and pepper to taste.

If you are a conservative player, you go with 90% MWT (Rotation) and 10% MWM (20 stock mom). Barbell strategy brings best of both worlds.

Because make no mistake, NO TWO people have the same risk profile and therefore one size fit all would not work.

The money that I manage for friends and family has this feature deeply ingrained. For my Mom, 50% of the money is in fixed income, 45% of the money is in Rotation and only 5% is in MWM for flavor sake. She doesn’t have to get RICH, she just needs to maintain it.

For myself, I pledge the MWT (Rotation) assets and use the margin to sell defined risk option strategies to augment my returns.

So as you can see, you can have as many permutations and combinations within these 02 strategies to ensure that you never reach your UNCLE POINT. (A point of no return where you throw in the towel)

In the end, it all boils down to knowing oneself. You should know what you want and how much pain you can withstand to achieve it.