Why use the Bearometer SM

You just lost a third of your net worth!  What word comes to mind?     

Well, stock market investors share a common concern.  LOSING BIG MONEY.  Why?  Bear Markets.  These are conditions where the markets drop more than 20%.  Historically on average we’ve gone through one of these every 3 1/2 years and when they occur the average market loss is 35%.

Take one moment and do this exercise.  Add up everything you have invested in the markets.  Did you include your 401(k)? Now calculate 1/3 of that amount.  What’s the number?  Now imagine that you just lost it! How does that impact you financially?  Emotionally? If you were an investor in 2008 then you get it.  If you’ve never experienced it, you don’t want to.

It can be emotionally devastating and very difficult to handle.  Financially it sets you way back, if not ruin you.  The older you are the more important it becomes to protect yourself from these large losses.

The markets also have drops of 10-15% that can be financially difficult. Historically we average a 10% correction once a year.

So how do you know when the markets will have their next drop?  Answer is, You don’t.  You CAN however be smart and prepare for it by protecting yourself every day.

The creation of the Bearometer SM

Carlson Wealth Management although founded in 2010 by John Carlson was actually born during the devastating bear market of 2000-2002.  It was the financial and emotional stress of markets that saw declines of 50% or more that drove Mr. Carlson, now a 25 year industry veteran,  to search for and ultimately find better answers in how to protect investors from market downturns that can potentially destroy people’s lives.

After being introduced to the teachings and philosophy of Point and Figure analysis in the midst of this bear market Mr. Carlson began to develop daily logs of price data that he felt could ultimately lead to creating a systematic, disciplined and effective tool to help identify when markets were turning negative in order to take the necessary steps to protect a portfolio.  Years later and many revisions along the way the Bearometer SM has evolved into an effective and competitive tool.

Our Objective using the Bearometer SM

Capital appreciation and capital preservation in all market conditions.

We expect that when applied through a full market cycle where the markets experience a Bull Market period, a Sideways Market period and a Bear Market period that a portfolio’s investment performance with the use of the Bearometer SM should exceed the returns that would have otherwise occurred without its use.  Beyond that it is our belief is that it can dramatically improve results.  Past performance is not indicative of future results.

Additionally, it is our objective and expectation that during this full market cycle we should be able to manage the amount of downside risk to a portfolio.  Our goal is for investors to experience a portfolio that keeps declines from exceeding 5% meaning even when the markets decline 10, 20% or more, the portfolio utilizing the Bearometer SM should not decline more than approximately 5%.  We feel that this is a level of risk that even the most conservative investors can live with in order to achieve their long term rate of return.

Our Strategy using the Bearometer SM

The Bearometer SM is a market trend indicator that CWM uses as a tool.  It systematically helps to identify changes in market trends.  When the indicator is in a Green zone, or positive, portfolios are invested in the markets.  When the indicator is in a Red zone, or negative, portfolios are adjusted in order to protect and preserve principal.

Visual History of the Bearometer SM

Green zones indicate a positive market.  Red zones indicate a negative market.  Zone color changes are based on the specific dates when the bearometer trend alerts occurred.

2008 2009 2010 2011
Bearometer 2008 Bearometer 2009 Bearometer 2010 Bearometer 2011
2012 2013 2014
Bearometer 2012 Bearometer 2013 Bearometer 2014


The Bearometer SM and the S&P 500 Index

The following graphs illustrate a comparison of the compounded annual growth rate (CAGR) of the S&P 500 index vs. the same index utilizing the trend signals of the Bearometer SM.  Performance results with the Bearometer SM assume either 100% invested in the S&P 500 index or 100% not invested based on the specific dates when trend signals were given.  Although this illustration is hypothetical the data used to calculate annual rates of return comes from sources deemed to be reliable.  Investors cannot purchase or invest directly in the S&P 500 Index.

Bearometer CAGR annual returns 2008 - 2014 Bearometer CAGR 2008 - 2014

SPX v SPXb Growth of $100,000



The information contained herein has been prepared without regard to any particular investor’s investment objectives, financial situation, and needs.  Accordingly, investors should not act on any recommendation (express or implied) or information in this material without obtaining specific advice from their financial advisor and should not rely on information herein as the primary basis for their investment decisions.  Information contained herein is based on data obtained from recognized statistical services, issuer reports or communications, or other sources believed to be reliable (“information providers”).  However, such information has not been verified by Carlson Wealth Management (CWM), our data provider Dorsey, Wright & Associates, LLC (DWA) or the information provider, and DWA, CWM and the information providers make no representations or warranties or take any responsibility as to the accuracy or completeness of any recommendation or information contained herein.  CWM, DWA and the information provider accept no liability to the recipient whatsoever whether in contract, in tort, for negligence, or otherwise for any direct, indirect, consequential, or special loss of any kind arising out of the use of this document or its contents or of the recipient relying on any such recommendation or information (except insofar as any statutory liability cannot be excluded).  Any statements nonfactual in nature constitute only current opinions, which are subject to change without notice.  Neither the information nor any opinion expressed shall constitute an offer to sell or a solicitation or an offer to buy any securities, commodities or exchange traded products.  This document does not purport to be complete description of the securities or commodities, markets or developments to which reference is made. 

Unless otherwise stated, performance numbers are based on pure price returns, not inclusive of dividends, fees, or other expenses.  Past performance is not indicative of future results.  Potential for profits is accompanied by possibility of loss.   You should consider this strategy’s investment objectives, risks, charges and expenses before investing.  The examples and information presented do not take into consideration commissions, tax implications, or other transaction costs. 

The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy.  Performance information presented is the result of back-tested performance.  Back-tested performance is hypothetical (it does not reflect trading in actual accounts) and is provided for informational purposes to illustrate the effects of the CWM strategy during a specific period.  The CWM strategy is NOT a guarantee.  There may be times where all investments and strategies are unfavorable and depreciate in value.  The CWM strategy is not predictive. 

Back-tested performance results have certain limitations.  Such results do not represent the impact of material economic and market factors might have on an investment advisor’s decision making process if the advisor were actually managing client money.  Back-testing performance also differs from actual performance because it is achieved through retroactive application of a model investment methodology designed with the benefit of hindsight.  CWM believes the data used in the testing to be from credible, reliable sources, however, CWM makes no representation or warranties of any kind as to the accuracy of such data.