How It Works
A system inspired by the world's best investors:
‣ How the market itself predicts the future
‣ Changing volatility determines the regime
‣ Strictly following the trend at all times
What makes a great investor?
What if great investing wasn't about predicting the future, but about listening carefully to what the market is already saying? Now imagine the qualities of a great investor. Perhaps some of these come to mind:
- A deep understanding of the market.
- A unique edge proven to outperform.
- Bold risk-taking when conditions are ripe.
- Disciplined risk management.
Can such traits be packaged into a rules-based system? Decades of historical data suggests the answer is yes.
TiltFolio Balanced and TiltFolio Adaptive combine these qualities into a single system that can be followed by anyone.
How markets predict the future
Legendary investor Stanley Druckenmiller, famed for generating an average of 30% returns per year for 30 years, said, "The best economist I know is the inside of the stock market." What did he mean?
There are many ways to categorize individual stocks in the overall market. For example, by sector (e.g., technology, healthcare, etc.) or by volatility (how much a stock moves up and down). The "inside of the stock market" refers to how groups of stocks perform relative to each other.
After studying decades of market data, TiltFolio's founder came to the same conclusion: that the internal movements of the market reliably anticipate shifts in volatility, offering a forward-looking signal few investors notice. Thus, the market predicts its own future performance by accurately forecasting volatility.
Risk-on or risk-off?
Most investing systems either chase price trends or respond to volatility after it happens. TiltFolio does something different: TiltFolio Balanced uses a mix of assets historically proven to trend higher over time. Meanwhile, TiltFolio Adaptive uses the "inside of the market", the relative strength between groups of stocks, to anticipate changes in volatility before they occur. This insight helps classify the environment as either risk-on or risk-off ahead of time.
Volatility matters because certain asset classes thrive under different conditions. Stocks, for example, tend to perform best when volatility is falling. Bonds and other defensive assets tend to do better when volatility is rising. By forecasting regime shifts in advance, TiltFolio positions the portfolio proactively, not reactively.
The final piece: trend-following
Clues hidden inside financial markets determine whether volatility is rising or falling. And decades of historical data suggest how specific asset classes are likely to respond to changing volatility. But this is still not enough to make a buying decision.
The final piece is to ensure the asset class being purchased is trending higher. Rising prices are how investors are compensated for taking risk, and price remains the ultimate driver of returns. To enforce discipline, the system only buys when the longer-term trend is positive, a time-tested rule used by hedge funds and institutions alike.
There are times when volatility is rising and no major asset class, such as bonds, is trending higher. During these times, the system buys a specialized defensive position designed to benefit from volatility spikes, acting as a proxy for rising fear in markets. In rare cases, when even this fails to trend higher, the system holds cash instead.