The Baby Bear is based on the book Muscular Portfolios (BenBella Books, 2018) by Brian Livingston. The strategy is a clone of a white paper first published in 1996 and repeated in numerous presentations by Jack Bogle, founder of the Vanguard Group.
The Baby Bear is designed to achieve performance similar to the S&P 500 over each complete bear-bull market cycle with smaller drawdowns than the index. The strategy is not a Muscular Portfolio but a starter portfolio. It's primarily designed to keep trading costs exceptionally low for people who have less than $10,000 to invest.
The investing menu consists of low-cost exchange-traded funds (ETFs) that track two asset classes. You allocate roughly equal dollar amounts to each ETF.
The table below updates a couple of hours after the close every market day. But don't trade every day! Check and tune up your portfolio only once a month, on the same day of your choosing. The best gain is achieved by reallocating on or around the last trading day of the month (see Newsletter #28).
| Asset class | 12-mo. gain | ETF symbol | Price | Buy |
|---|---|---|---|---|
| All US stocks | +10.07% | VTI | 274.52 | 50% |
| All US bonds (government & corporate) | +7.23% | BND | 73.06 | 50% |
Strategy Rules: The Baby Bear Portfolio, unlike a Muscular Portfolio, has no strategy rules. You simply allocate 50% to each of the two ETFs shown above, regardless of market conditions.
Execution Rule: Buy or sell an ETF only if its bid-ask spread is less than 1.0%. (If greater than 1.0%, a "flash crash" might be occurring. Check an hour later to see whether an orderly market has been restored.) Popular ETFs typically have spreads below 0.2%, but some bond and commodity ETFs have legitimately higher spreads due to trading differences.
KEY TO STATS
12-mo. gain is equal to an ETF’s nominal total gain (including dividends) over the past 252 trading days.
Prices and returns are recalculated approximately 2 hours after market close.
A flash crash is a temporary situation lasting a few minutes, during which prices and spreads suddenly move far from their typical values.
|
