Hunting For Weeds So the Flowers Can Bloom

“Beware the investment activity that produces applause; the great moves are usually greeted by yawns.”

–Warren Buffett

In honor of Berkshire Hathaway’s annual letter being released this past weekend, we thought the best way to introduce this Monthly Note was to borrow brilliance from the man often known as the world’s greatest investor. In this year’s letter, Warren Buffett highlighted a few of Berkshire’s most impactful investments during the last 58 years. In his customary way, he informed and educated investors and shareholders alike about timeless principles. 

For us, we can’t help but read the annual report (or anything else, really) through the lens of trend following. And, in our view, trend following shares many of the timeless virtues espoused by famous investors like Warren and Charlie Munger of Berkshire, as well as Howard Marks of Oaktree Capital. 

The excerpt that stood out the most to us from the 2023 letter was in Warren’s discussion about the distribution of investment outcomes. He wrote: “The lesson for investors: The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well.”

In trend-following parlance, this quote describes the notion of cutting your losses short and letting your winners ride. In practice, trend followers do not allow the weeds to wither; instead, we go hunting for weeds to remove. The idea that over the long run, a few winners generate the lion’s share of gains is spot on, in our view. A systematic investing process attempts to put you in a position of the highest probability of success by using the information you have in the moment. No predictions, gut feelings, or prognostications.

In this Monthly Note, we look at the current environment as a good news/bad news scenario and discuss the merits of systematic investing through the framework of risk management and timeframe selection. 

Below are the asset classes utilized in our portfolios and their model-driven exposure heading into March.

Disclaimer: This note is for general update purposes related to the general strategy and approach of Spartan Planning portfolios. Every client’s situation including Risk Profile, Time Horizon, Contributions, and Distributions is different from other clients. Your exposure to any given asset class will depend on your goals, risk profile, and how tactical or static your risk profile calls for. Adjustments can vary across strategies depending on each strategy’s objectives. What’s illustrated above most clearly reflects allocation adjustments for the Growth Strategy. If there have been changes to your risk profile and/or goals or if you wish to discuss them in more depth, please contact your advisor.



Equities & Real Estate

U.S. equities started off February with a bang before a wave of negative news extinguished the short-lived rally. As we end the month, large-cap equities find themselves below the fourth-quarter high and searching for direction. On the bright side, large caps did manage to (unconvincingly) break the downtrend line established at the start of 2022. 

Likewise, the end-of-month declines in mid and small caps have only brought them back to retest Q4 highs with small caps joining mid in uptrends over both timeframes. On the one hand, these conditions are to be expected if a longer-term uptrend is to be established. Realistically though, these movements are also perhaps a sign of a sideways pattern that could persist for some time. 

The end result is that our portfolios will experience a small increase in exposure to large caps as it receives exposure from weaker real estate securities, but remain underweight overall versus the baseline allocation for mid-caps, and increase exposure to small caps.

Foreign-developed equities retraced a bit but remain relatively strong compared to U.S. equities so far this year. Our portfolios moved into an overweight status in February for the first time since late 2021, and they will remain here in March. In fact, foreign developed exposure will increase to its maximum as it takes on the allocation vacated by emerging markets.

Emerging market equities flirted with triggering a long-term uptrend to join the intermediate-term one in February, then tumbled to end the month, and now have re-entered downtrends across both timeframes. All our portfolios will remain underweight and at their minimum allocation.

Of the equity and equity-like asset classes, real estate securities have done the least to break the pattern in place since the start of 2022. The retracement in the second half of February generated a downtrend over both the intermediate- and long-term timeframes. For now, all our portfolios continue to be underweight.

Fixed Income & Alternatives

As was seen in multiple equity segments, U.S. and international Treasuries experienced their own decline in February. The decreases are enough to cause these asset classes to have downtrends across both timeframes. As a result, all our portfolios will move back to their minimum allocations. This exposure will be handed back to ultra-short duration fixed-income instruments.

As might not be a huge surprise following the steep increases since the beginning of November, gold fell hard in February. Gold is holding its uptrends, but has retested the Q4 highs. For now, our portfolios remain at their baseline allocation for March. If conditions continue to deteriorate, a reduction in exposure would be in order as early as April.

    Three potential catalysts for trend changes:


    • Real Wage Loss: Wage growth is plateauing or declining from previously high levels. For central banks around the world, it is welcome news because there aren’t signs of a wage-price spiral in which wages push up prices, which in turn push up wages again. This makes inflation less sticky and more likely to decline without a significant increase in unemployment. For workers, it is less beneficial. Workers’ inflation-adjusted purchasing power was lower last year than in 2019, before the pandemic.
    • Consumer Spending Priorities: Consumers are spending more on food and less on electronics, apparel, and home improvements. Inflation and changing habits have dried up demand for more discretionary goods. As an example, Walmart and Home Depot have enjoyed elevated sales post-COVID as people looked for bargains or fixed up their homes. Now, more of shoppers’ budgets are going to higher-priced groceries and travel.
    • Millennial Debt: Americans in their 30s have piled up debt at a historic clip since the pandemic. Total debt balances hit more than $3.8 trillion in the fourth quarter, a 27% jump from late 2019, according to the Federal Reserve Bank of New York. It is the steepest increase of any age group and is the fastest pace of debt accumulation over a three-year period since the 2008 Financial Crisis. Unfortunately, this buildup of debt could worsen a generational wealth gap that was already rising for millennials who graduated into the 2008 crisis era.

    There’s Good News…And There’s Bad News

    “Wisdom is tolerance of cognitive dissonance.”

    Robert Thurman

    A common theme we are observing in the markets right now is “first time in a while.”

    As was covered in the Asset-Level Overview section, for equities we’ve got good news and we’ve got bad news…

    The good news is:

    • U.S. large caps have broken the downward trending pattern reinforced throughout 2022. 
    • Value and dividend segments are moving to within single-digit percentages from the highest levels in 20 years.
    • Mid and small caps are consolidating in a range above their intermediate and long-term averages.
    • Foreign-developed equities have established solid, positive trends across both timeframes.

    And the bad news:

    • While nearly establishing a long-term uptrend, U.S. large caps experienced a very weak close to the month and failed to follow through, leaving the longer-term downtrend in place.
    • Value and dividend stocks have failed highs and are lagging in 2023 after leading in 2022.
    • No major equity asset class is seriously approaching new all-time highs as we close out February.
    • Inflation and employment data continue to support the narrative of more rate increases, not cuts.

    It appears that we have a stalemate between the bulls and the bears at the moment. Equities (and bonds for that matter) have yet to substantially retest lows from 2022, but as mentioned above are not nearing new highs either. There seems to be an underlying desire from investors to push the market higher: yet, economic data and subsequent Federal Reserve commentary continue to stand in the way.

    Some could argue that relatively directionless markets, like we are witnessing now, are as close as one can get to “the Achilles heel for trend-following” strategies, but we want to highlight two areas that show why systematic portfolio management via trend-following still shines.

    #1 – Generally Low Cost of Risk Management

    We often talk about how risk management is “baked in the cake” with our systematic investing process. If your rules are designed to allow for participation in ascending markets, while stepping away from declining markets, then all you have to do is consistently follow the rules and you should conceivably achieve better risk-adjusted return over time. 

    The rules that allowed our portfolios to have generally high equity participation in a market like 2021 are the same rules that generated exposure reduction signals in 2022 and caused our portfolios to have low or minimal participation in highly volatile assets in 2022. 

    It’s fairly easy to compare the performance of our portfolios from 2021 and 2022 and see how they held up better than most 80/20 or 60/40 stock/bond portfolios. This short period so far in 2023 is more difficult because as some of these standard, passive portfolios rebound, our portfolios may lag briefly, as the markets seek steady direction. 

    The same rules and systems that drove 2021 and 2022 are at work today. Our process is designed to constantly identify market trends to capture burgeoning uptrends while continuing to insulate from downtrends’ potential damage to portfolios.

    #2 – Timeframe Selection

    That takes us to timeframe selection. 

    We are often asked why we don’t choose shorter-term timeframes to trigger more trades. Besides turnover and potential unfavorable tax consequences, another big reason is the inevitable periods of choppy markets like we are experiencing now. 

    In our research, the effects of sideways movement can be exacerbated if shorter trend-following rules are used. So, in our opinion, many potential positives of making a system shorter-term are far outweighed by the negatives. 

    We have methodically chosen the timeframes we use to provide what we believe is an optimal balance of minimal turnover, tax awareness, risk management, and opportunity targeting.

    Final Thoughts

    Our hope is that our constant, tireless focus on discipline and service allows you to rest easier. History has taught us that better times are usually ahead, and we believe you are best positioned to benefit from those better days when we can help you remain committed to your financial plan.


    David Childs, Ira Ross, and Eric Warren

    Disclaimer: this note is for general update purposes related to the strategy and approach of Spartan Planning portfolios. Every client’s situation including Risk Profile, Time Horizon, Contributions, and Distributions is different from other clients. Your particular exposure to any given asset class will depend on your goals, risk profile, and how tactical or passive your risk profile calls for. If there have been changes to your risk profile and/or goals or if you wish to discuss them in more depth please contact your advisor. This email and the data herein is not a solicitation to invest in any investment product nor is it intended to provide investment advice. It is intended for information purposes only and should be used by investment professionals and investors who are knowledgeable of the risks involved. No representation is made that any investment will or is likely to achieve results comparable to those shown or will make any profit at all or will be able to avoid incurring substantial losses. While every effort has been made to provide data from sources considered to be reliable, no guarantee of accuracy is given. Historical data are presented for informational purposes only. Investment programs described herein contain significant risks. A secondary market may not exist or develop for some investments portrayed. Past performance is not indicative of future performance. Investment decisions should be made based on the investors specific financial needs and objectives, goals, time horizon, tax liability, risk tolerance and other relevant factors. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Investors should consider the underlying funds’ investment objectives, risks, charges and expenses carefully before investing. The Advisor’s ADV, which contains this and other important information, should be read carefully before investing. ETFs trade like stocks and may trade for less than their net asset value. Spartan Planning Group, LLC (“Spartan” or the “Advisor”) is registered as an investment adviser with the United States Securities and Exchange Commission (SEC). Registration does not constitute an endorsement of the firm by the SEC nor does it indicate that the Adviser has attained a particular level of skill or ability. Indexes are unmanaged and do not incur management fees, costs, and expenses. Spartan’s risk-management process includes an effort to monitor and manage risk, but should not be confused with and does not imply low risk or the ability to control risk. There are risks associated with any investment approach, and Spartan strategies have their own set of risks to be aware of. First, there are the risks associated with the long-term strategic holdings for each of the strategies. The more aggressive the Spartan strategy selected, the more likely the strategy will contain larger weights in riskier asset classes, such as equities. Second, there are distinct risks associated with Spartan Strategies’ shorter-term tactical allocations, which can result in more concentration towards a certain asset class or classes. This introduces the risk that Spartan could be on the wrong side of a tactical overweight, thus resulting in a drag on overall performance or loss of principal. International investments may involve additional risks, which could include differences in financial accounting standards, currency fluctuations, political instability, foreign taxes and regulations, and the potential for illiquid markets. Investing in emerging markets may accentuate these risks. Diversification strategies do not ensure a profit and do not protect against losses in declining markets