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Why We Use A Rules-Based Process Thumbnail

Why We Use A Rules-Based Process

In the last two weeks, we have gotten a surprising number of clients asking essentially the same thing: “Why are my accounts doing so well?”  While it could go without saying, we are living in remarkable times.  The things we have all witnessed lately are simply astounding. Therein lies the source of the question that a surprising number of clients have asked in such short order: Given what we have witnessed, how is it that the markets continue to march higher?

For some time now, Hicks & Associates Wealth Management has deployed a rules-based investment management process. Using a well-defined set of rules helps us decide a) whether to buy or sell and b) what specifically we should buy or sell.  This does not mean that a rules-based approach will guarantee profits nor always avoid losses. However, by utilizing a definable set of possibilities and a definable set of rules, we can back-test the investment theory.  This is how we invest the vast majority of our clients’ portfolios.

Managing money in this manner helps us to remove as many biases as possible as it allows us to rely on a “weight of the evidence” approach. While one might feel that the market should not be reacting the way that it is, we divorce ourselves from our emotions and simply look to the evidence and respond accordingly.

For example, back in July of 2020, the investment management rules that we employ suggested that we would need to buy the retail sector exchange traded fund in the coming month (ETF symbol: XRT). At the time, this did not make sense to us as our perspective was that retail was getting crushed with the economic lockdowns we have (and are) experiencing.  As a result, since the rules were simply warning us that we would be buying next month if the trend continued, we dismissed it as a fluke and moved on.  However, when August rolled around, the data indicated that it was not a fluke and we should be buying this retail ETF in our “Satellite” model.  Since it still did not sit well with our logic, we researched it further by looking under the hood of the ETF at what stocks the ETF was holding.  If memory serves me correctly, some of the positions at the time were Overstock.com, Camping World, Carvana, Amazon.com, etc. As we went down the list, the positions made sense given what we were / are witnessing in the economy. Having satisfied our skepticism, we bought XRT on August 5th in our Satellite model per our investment management rules.

Here are the current results:

Chart: SPDR S&P Retail ETF – Symbol XRT – 1 Day CandleStick Chart Source: TD Ameritrade


As this note is being drafted, the position has climbed ~48%. This is a perfect example of why we use a rules-based approach. When this position first appeared on our radar screen, our instincts told us “no way” but we followed our well researched process and have been pleased with the results.

So, why are the accounts doing so well despite the crazy environment in which we find ourselves? Because we are divorcing ourselves from our emotions and sticking to the rules that govern our investment philosophy.

Finally, I would be remiss if I failed to state that this should not be considered a recommendation to buy either the XRT ETF or any of the stocks mentioned herein.  This is a historical example and by the time you read this, it is also entirely possible that this position has been sold.

As always, if you have any questions for any member of our team, please do not hesitate to reach out.   It is an honor to serve you.



This information is provided for educational purposes only and should not be construed as a recommendation to take action.  You should consult with a qualified financial professional before making any decisions.   While the position reflected has done well, there are other positions in the portfolios that have not done well.   You should refer to your custodial statements to determine how your portfolio has performed over time.  Past performance is not indicative of future results.  We take this information from sources we believe to be reliable but we make no guarantee as to its accuracy.  Exchanged Traded Funds such as the one described are sold by prospectus.  The prospectus contains important information which you should read.  If you would like a copy of the prospectus please contact your financial advisor.