Featured Strategies 2023 – And 2022 Review

1. A review of 2022 core funds and beer bet strategies
2. A limited commentary on the bear market
3. Featured Strategies 2023

1. A review of 2022 core funds and beer bet strategies

2022 was rough…

And here are the beer bet results so far (12/24/22)…

With a week to go, it appears to be Larry by a mile. However, Larry and Jerin’s strategies diverge right now, Larry will be spending the rest of the year in a 75% S and 25% C mix, while Jerin goes to the I fund. I don’t think we’re likely to see a 4% difference between those two in the final week, but it wouldn’t surprise me, either. The I fund seems to do very well right at the end of the year.

Compared to the US market (C & S funds), Larry, Jerin are winners. Ryan is approximately tied with the C fund, which is a great place to be. My strategy is doing worse, roughly tied with a 50/50 C & S split. Deena and Travis are not looking great this year.

2. A limited commentary on the bear market

The market has taken a beating this year. I would not be surprised to see it take more beating going into the new year.

What gives? Well, the talking heads have no shortage of theories. I am not an economist, but I think all of these things come into play-

1. Pandemic-induced supply chain issues. This has been discussed to death so I won’t dwell on it further. The US, and most countries are mostly open for business, but China is still implementing localized lockdowns in responds to Covid outbreaks. So Covid is still having a supply-chain effect today. The effects of this will eventually wane.

2. The housing shortage, 12 years in the making. After the collapse in 2008, construction companies went out of business and many tradesmen left the profession. In addition to that, there weren’t many investors or private homeowners trying to build. So as a nation, we were under-building a historical average until about 2020. Take a look at the graph from the St Louis Federal Reserve of US housing starts.

A genuine housing shortage combined with super low interest rates caused housing prices to skyrocket. Housing prices will begin to fall as the Fed continues to raise rates, which will reduce demand. However, we still don’t have enough housing. So in my opinion, we’re not likely to see a collapse of housing prices like we did in 2008. Maybe a 10-20% price correction.

The housing shortage should eventually ease, as construction continues above the historical average rate.

3. The Russia-Ukraine war. I will admit, just a couple of days before the invasion, I publicly stated that the Federal Reserve’s actions were having more impact on the stock market than Putin’s “empty threats”. I was definitely wrong about that. Immediately after the invasion, I was thinking that the historical logic of “buy every invasion” would do an investor well.

I think the global economic impact of this war is different than wars of the past because global economies are more intertwined with trade than ever before. The war greatly disrupted already fragmented supply chains. There are numerous examples of this- The energy crisis in Europe, the grain crisis in Africa, and the refugee crisis accompanying the war.

Also, we kicked Russia out of SWIFT, which was unprecedented. SWIFT is a global payment system in which foreign transactions are conducted in US dollars by US banks. It is one reasons why the US dollar has been the undisputed world reserve currency for so long. The US weaponized the SWIFT system against Russia, which spooked nations all over the world looking for an alternative to the US dollar.

There was an economic alliance formed in 2009 including Brazil, Russia, India, China, and South Africa. The alliance is called BRICS for short.

It’s tough to predict exactly what impact on our economy will come from the fading dominance of the US Dollar. But I do think it’s safe to say that it’s going to continue to lose dominance, and that is going to negatively impact our economy in the long run. I think this is a great video on the topic:

I don’t think he mentioned it in the video, but BRICS is working on a new world reserve currency to rival SWIFT:

https://www.silkroadbriefing.com/news/2022/10/04/brics-working-to-develop-a-new-reserve-currency/

4. The US Federal Reserve.

The Federal Funds Rate, which dictates the cost of borrowing to banks, which then dictates the cost of borrowing cor businesses and consumers, was at basically 0% from 2008 until 2017. This long duration of cheap debt fueled inflation, first in the stock market, and then helped inflate the housing market along with the housing supply shortage.

After a decade of near-zero rates, the policies of the Fed during the pandemic injected massive amounts of liquidity into the financial markets. In my opinion, this is one of the largest contributors to our current economic problems. The Fed is currently raising rates aggressively, which I think is the right move but two years too late.

The stock market will bounce back, someday. We may find the bottom of the stock market in Q1 or Q2 2023. But I don’t have a crystal ball for that.

3. Featured strategies 2023

Matt – 57805

Here’s the strategies I have used the last four years:

• 2019: 57805
• 2020: 86104
• 2021: 138665
• 2022: 162768

And here’s how they would have performed, if I had picked one strategy and held it multiple years (Data as of 12/24/22):

• 2019-2022, Strategy #57805 would have a total return of 62.56%, compared with 64.03% for the C fund, and 39.59% for the S fund over the same time period
• 2020-2022, Strategy #86104 would have a total return of 32.21% compared with 24.78% for the C fund, and 9.09% for the C fund over the same time period
• 2021-2022, Strategy #138665 would have a total return of -19.47% compared with +5.47% for the C fund, and -17.27% for the S fund over the same time period
• 2022, Strategy #162768 is currently at -21.22%, compared with -18.03% for the C fund, and -26.43% for the S fund over the same time period.

It’s worth noting that #57805 has beat both C & S fund 3 out of 4 years. But in 2020, it lost pretty badly to the C & S. #57805 is a strategy that uses only the C, S, and I funds. It does not use the G fund or the F fund. In 2020, the I fund was significantly behind both the C & S:

	C Fund	S Fund	I fund
2021	28.68%	12.45%	11.45%
2020	18.31%	31.85%	8.17%
2019	31.45%	27.97%	22.47%
2018	-4.41%	-9.26%	-13.43%
2017	21.82%	18.22%	25.42%
2016	12.01%	16.35%	2.10%
2015	1.46%	-2.92%	-0.51%

The point about 2020 being an anomaly (hopefully!) is more easily made after subtracting the I fund return from the C & S returns, to show the difference. In 2020, the S fund just destroyed the I fund:

	C Fund – I Fund Return	S Fund – I Fund Return
2021	17.23%	1.00%
2020	10.14%	23.68%
2019	8.98%	5.50%
2018	9.02%	4.17%
2017	-3.60%	-7.20%
2016	9.91%	14.25%
2015	1.97%	-2.41%

After reviewing all of this, I came to two conclusions.

First, Seasonal Strategies are using the law of averages. It makes sense then, that for the averages to work, you would have to apply the same strategy for several years.

Second, I will be using Strategy #57805 this year, and likely into the future.

Travis – 172527

For the first time in years, I lost to the market this year.

And more painfully, lost the beer bet! Despite getting trounced in the market this year, the COVID highs and lows tempered by anxiety level. When I started doing an all equities strategy, the inherent risk was that you would be maximizing potential during Bulls, but you would likely have a blunted fall on the backside.

That obviously didn’t happen for me this year, and proves that even though the strategies are data driven, they certainly aren’t fool proof.

Does that mean all is lost, quickly abandon ship!? Yeah, right… The stock market, your TSP, and the strategies continue to be an excellent tool to utilize in your path towards financial freedom and retirement.

Without further adieu let’s go to the strategy I chose for 2023! It’s incredibly similar to my 2022 strategy, with the notable exception of more I Fund in April. I like a little more exposure there, especially with the current climate in the US markets. My strategies are unlikely to shake the foundations…but allow me the stability of trying to maintain the best historical funds, without missing a meteoric rise while I’m on the sidelines.

Cheers to 2022 in the rearview mirror and hopefully a much better year in 2023!

https://tspcalc.com/seasonal.php?ID=172527&benchmarks=C-S

Larry – 172388

Winning (maybe, probably) the 2022 Strategy Beer Bet at -12% seems like a hollow victory on the surface.  But then again, beating the S&P 500 (C Fund) by 6%, is pretty good.

As of 26 Dec:

Beer Bet Strategy	162464	-11.89%
S&P 500	C Fund	-18.03%
“Almost” Strategy	162166	5.21%

The basics of my 2022 strategy, 162464, were:  No F Fund, no I Fund, and limited IFTs.  15 IFTs in this case.  The thought was two-fold:  Eliminate 1-3 day swings that always seemed to miss by a day or two, and encourage me to stop looking at it every day.

My “almost” strategy, 162166, was created using the Seasonal Builder.  The criteria:  No F Fund, No I Fund, beats C Fund 60% of the time and beats S Fund 60% of the time, using all years 2004 -2021.  The “beats” tool in the builder is a monthly calculation, so 60% = about 7 months a year.  162166 beat C Fund every year 2004-2022, sometimes by a little, sometimes by a lot.

Moving into 2023, I decided to use the same criteria as 162166, but also include 2022.  The resulting strategy is 172388, and the numbers are staggering.  It beats C Fund every year, by a significant number.  It seems to do particularly well following bad years in the C Fund.  See 2009, 2012, 2016 and 2019.

https://tspcalc.com/seasonal.php?ID=172388&benchmarks=C-S-Larry22

So, I hate F Fund and I Fund; Too sketchy for me.  I don’t really analyze markets or market factors.  I’m playing averages and looking for patterns in numbers.  I do plan to follow this throughout the year. 

Deena – 162551

https://tspcalc.com/seasonal.php?ID=162551&benchmarks=C-S

Deena has chosen the same strategy that she chose for 2022

Jerin – 162452

https://tspcalc.com/seasonal.php?ID=162452&benchmarks=C-S

Jerin has chosen the same strategy that he chose for 2022

Ryan and Anthony have left the beer bet

Ryan doesn’t drink alcohol, and Anthony got sick of losing.