Strategy

[For the performance results click here]

The Austrian Strategy is a prudent bet on simplicity and intellectual humility as a better investment strategy in a complex and unpredictable world.

The most important success factor of any investment (once costs are minimized and we have learned to control our emotional behavior) is choosing the appropriate strategy that fits both the nature of markets and our own nature.

First, I will clearly state the objectives of the Austrian Strategy. Then, I will configure the investment process in 3 steps.

Objectives of the Strategy

The aim of the Austrian Strategy is to provide a prudent yet effective way of investing, to satisfy the demand for a simple and diversified multi-asset core holding for prudent investors with the following objectives:

  • Preservation of wealth during recessions and crises with steady capital growth across all economic environments.
  • Clarity and profitability to the prudent and risk-averse investor, generating equity-like and gold-like returns over the medium-long term but with much less volatility and substantially smaller drawdowns (see performance statistics → here).
  • A true back to basics, simple and robust strategy, that inherits millenary investment wisdom, economic sense and empirical evidence. (More about the power of simplicity → here).

Investment Process: A Strategy in 3 Steps

Simplicity is the ultimate sophistication

—Leonardo da Vinci

The Austrian Strategy I present, minimizing complexity and embracing uncertainty, is based on the Austrian School of Economics and validated by empirical evidence. Without digressing from the basic investment principles established over millennia, the Austrian Strategy logically and empirically answers the three standard investment questions in the most simple and robust way:

(For a more in-depth explanation, please click and follow the link on each question)

  1. What assets to invest in?
    1. Empirical evidence shows that the five classic asset classes (Equities, Government Bonds, Real Estate, Gold and Cash) are sufficient to cover and capitalize on the states of the economy —growth, recession, inflation and deflation.
    2. As a consequence, the Austrian Strategy invests globally into these classic assets through low-cost ETFs exposure to its indexes.
  2. What asset allocation to implement?
    1. Empirical evidence shows that it is impossible to forecast markets consistently.
    2. As it is impossible to forecast which asset will outperform in the future, there is no rational justification to weight one asset more than another. Therefore the Austrian Strategy will implement an equally-weighted portfolio asset allocation model.
  3. What risk control to run?
    1. Being unable to forecast the future, the Austrian Strategy implements a reactive (not predictive) convex risk management.
    2. Convexity is achieved in a Risk-On Risk-Off dynamic way. Following my proprietary risk management based on momentum, the Austrian Strategy limits the deep and prolonged losses that each asset periodically suffers while lets profits run during bull markets as long as they last.

The Austrian Strategy solution on how to invest can be summarized as:

Invest in a low-cost, equally-weighted global portfolio, covering all possible states of the economic cycle with the sufficient classic asset classes, using indexing and providing with momentum a convex risk control to the whole portfolio

Properties of the Austrian Strategy:

This approach produces a simple yet robust strategy that can generate equity-like returns over the medium to long-term but with less than half the risk,

Notice that due to its exposure to gold up to 25% (see here), this strategy is also a more prudent, diversified and less risky way to invest in gold.

The strategy provides a solid core for investors’ portfolios with the following main properties:

    • Asset Class diversified
    • Globally diversified
    • Non-judgmental
    • Long-only
    • No leverage
    • Robust
    • Transparent
    • Liquid
    • Simple to understand and to follow

See the performance results → here.