Imagine your best buddy or girlfriend calling you up, “have you seen the spreads, wow they are blowing out!”
No, you can’t picture that?
I didn’t think so.
You may have heard us talking about this rather weird term “credit spread”. Or you may hear it on the financial news shows. These are a part of momentum modeling or trend following. It is one component of rules-based method for investment decision making.
Trend following is simply measuring the marketing movement and moving in the direction that the market wants to move; stocks, bonds, cash, etc.
To do this, we must have a tested rules process to measure the market direction and make those decisions. This does not happen by opinion driven research or gut instinct.
This doesn’t allow us to jump to far out in front of the markets and it is certainly not a crystal ball, much to our chagrin.
These rules keep us on track when current events cause us all to want to be emotional.
The following article is from our investment team discussing our use of trend following in much more detail. This describes one of the four parts of our framework for judging markets. Please feel free to read, skim, or just chunk it saying this way to nerdy for me!
You are welcome to call your Sound Financial advisor at any time.
We look forward to talking with you and appreciate your trust in us!