Defense at the cost of offense? - TPS top 10 gains and losses

Updated: May 20

VTS Community,


One of the core principles in my overarching investing philosophy is that I believe it's far more important to be conservative and reduce portfolio drawdowns than it is to get aggressive and chase big gains.


I wrote a previous article on this you can check out that was called: The best offense is a good defense. That sums up my investing philosophy very succinctly.


The vast majority of the investment industry is focused on the gains side of the equation, getting aggressive, adding leverage, and bragging on Twitter every time they have a good month. But I believe it's the defense that really makes the big difference in the long run. That's why, try as they may, the vast majority of the financial industry underperforms the S&P 500 in the long run. We're talking 90% or more of them below it. And of the small percentage that are above it in the long run, most aren't by much.


Since I do focus on reducing drawdowns though, it means I don't lose much ground every time the market doesn't cooperate, which is increasingly more often in the last few years. As a result, the VTS Total Portfolio Solution is significantly higher than the S&P 500. 345% total return for TPS vs 173% total return for SPY


Performance comparison since VTS launched in January 2012:


Total Portfolio Solution is my diversified VTS portfolio

SPY - S&P 500

TLT - 20+ yr US Treasury

HFRI - HFRI Hedge Fund Index

CBOE - CBOE Eurekahedge Short Volatility Index


So it's pretty clear if you follow my work, I'm all about reducing drawdowns and providing that low stress long term investing experience.


But does that mean I completely neglect the gains side?


To explore this, here are two tables. The first will be no surprise to anyone, it's showing the top 10 worst months for my Total Portfolio Solution vs the 10 worst months for the S&P 500.


Top 10 worst monthly returns since January 2012:


TPS - VTS Total Portfolio Solution

SPY - S&P 500 including dividends


And remember that old saying, "Losses are more costly to a fund than gains are beneficial."


- The Total Portfolio Solution losing -29.25% compounded in my worst 10 months requires a subsequent gain of 41.34% to get back to break even.


- The S&P 500 losing 50.04% compounded in its worst 10 months requires a subsequent gain of 100.16% to get back to break even.


Due to the drawdown being so much less for our TPS, the losing months are far less costly and as a result we spend much more time at or near all time highs in our long term progress. As I showed in the "best offense is a good defense" article, of the six largest drawdowns for the Total Portfolio Solution since we launched in January 2012, five of them were recovered entirely one month later.



But what about the 10 largest winning months? If my portfolio is focused so much on defense, does that mean we sacrifice the best months?


Top 10 best monthly returns since January 2012:


TPS - VTS Total Portfolio Solution

SPY - S&P 500 including dividends


Fortunately, our top winning months outperform the S&P 500 in the long run as well.


However, despite the fact that the TPS outperformed the S&P 500 in both the best months and the worst months, I still want to stress that I absolutely believe the outperformance in losing months is by far the most important side of the equation. While stretches of winning months are always fun, it really is the reduction of losing months that will help us reach our retirement goals.


"Losses are more costly to a fund than gains are beneficial"

- Brent Osachoff




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* All information, analysis, and articles on this site are provided for informational purposes only. Nothing herein should be interested as personalized investment advice as I make no recommendations to buy, sell, or hold any securities or positions. I'm making this website available "as is" with no warranty or guarantees of its accuracy, completeness, or current's. If you rely on this website or any of the information contained, you do so entirely at your own risk. I do not hold myself out as a financial advisor and nothing herein is a solicitation for any fund or securities mentioned. Although I may answer general questions about the information herein, I'm not licensed or registered under security laws to address your personal investment situation. Past performance is not indicative of future results. Any and all financial decisions are the sole responsibility of you the individual.