What is Silo Investing?
Do you remember the movie Moneyball? It is the story of a major league baseball general manager who discounted the star persona of players and, instead, used data analytics to value and assemble a team that could compete for the World Series. That model proved so effective that other teams began to adopt it, and it became the prevalent method to assemble teams across all sports.
Through back testing, Future Bright has discovered that by being data driven and completely agnostic to Wall Street narratives, we can apply a Moneyball-like philosophy when selecting investment portfolios. By removing emotion from investment decisions and just taking cues from key economic data points, we believe our process can increase your probability for successful returns in both bull and bear markets.
Based on the direction of 2 economic data points (GDP and Inflation), Future Bright has segmented specific investment asset types into 4 models designed to perform effectively under each directional economic condition. We call these 4, “Silos”.
Silo 1 = GDP increasing & Inflation decreasing
Silo 2 = GDP increasing & Inflation increasing
Silo 3 = GDP decreasing & Inflation increasing
Silo 4 = GDP decreasing & Inflation decreasing
Our goal is to reduce large draw-downs in account values by avoiding land mines in the markets. For example, we would not want to hold airline, restaurant, or cruise ship stocks into a health pandemic. That’s a decision based on data.
For years, financial advisors have utilized pie charts to illustrate their decision-making. Imagine a pie cut into 30 different slices with each one containing a percentage of your investment assets. One slice might be comprised of United States Treasuries, another comprised of Chinese stocks, and another comprised of International bonds, and so on until you have all 30 slices filled. Diversifying across all major asset groups has been the prevalent asset implementation methodology in our industry for decades. Unfortunately, the spate of boom and bust markets we’ve experienced in the last 25 years doesn’t afford us that casual asset allocation luxury anymore. Asset management success requires more effort and design than it did in the 1990’s in order to produce reasonable returns.
To reiterate, we take our cues from 2 data points – GDP and Inflation.
Why do GDP and Inflation matter to our investments? These two data points determine whether we are experiencing prosperity, reflation, stagflation, or deflation, and assets respond either favorably or unfavorably to each condition. Our goal is to position your money appropriately under each silo condition. Please take some time to review the table on the backside of this page for more specific information about how we handle asset placement in these silos.
If you think you could benefit from a more active management approach for your investment dollars, we’d love the opportunity to teach you how this system of money management works for our current clients.
Future Bright, LLC
