What is "Fair Weather" Investing?
Fair Weather Investing is a trend-following strategy that involves holding a fund or security only while it is in an uptrend (has upward price momentum). If any particular fund we hold loses upward momentum, we sell that fund and move the proceeds to cash. When that fund regains upward momentum, we typically reinvest in that fund.
The implications of this strategy are that at times, our portfolios can be heavily weighted towards cash, increasing the probability that our portfolios will be less volatile than had we simply bought and held those funds.
Conventional market theory suggests that less volatile portfolios generally display lower returns. Our research has shown that some trend following strategies have historically been able to generate returns comparable to or better than buy and hold, whilst at the same time displaying significantly less volatility than buy and hold. Past performance is no guarantee of the future of course.
Past performance is no indicator of future return. There is no guarantee that applying a moving average strategy will either increase your portfolio’s return or lower its volatility as compared to any other strategy. Some securities and market environments are particularly unsuitable for trading using a moving average system. A moving average strategy will likely incur higher commissions than a buy and hold strategy and may or may not increase your taxes relative to buying and holding.