All Weather Investing with Eric Crittenden

Episode Summary

Executive Summary: Eric Crittenden argues that true all-weather investing means building portfolios prepared for plausible but painful regimes—especially inflation, rising rates, and stock-bond correlation breakdowns. He defends diversified, liquid, trend-based multi-asset portfolios, explains why investors resist them behaviorally, and emphasizes realistic expectations over backtested fantasy returns.

Main Topics: Defining all-weather investing (Priority: 5/5): All-weather means preparing for plausible macro regimes, not optimizing for one environment. Crittenden stresses inflation, stagflation, and stock-bond drawdowns as key risks investors ignore. Behavioral bias and line-item risk (Priority: 5/5): Investors often like diversified portfolios in aggregate but abandon them when individual sleeves lag. Seeing components separately creates emotional resistance to diversification. Stocks, bonds, and the 60/40 illusion (Priority: 5/5): He argues the 40-year bond bull market made stocks and bonds look like natural hedges, but that was historically unusual and may not persist. Managed futures and trend following design (Priority: 4/5): Crittenden favors a composite of short-, medium-, and long-term trend models across liquid futures markets, with scale and liquidity as primary design constraints. International diversification and non-U.S. markets (Priority: 3/5): He supports including global markets, currencies, and European/Asian risk-transfer markets when they add diversification and trend opportunities. Backtesting discipline and realistic expectations (Priority: 5/5): He warns against curve fitting, cleaned data, and excluding delisted markets, arguing that credible strategies should have humble, plausible performance assumptions. Leverage, retirement use cases, and tail risk (Priority: 4/5): He frames leverage as a tool, not inherently dangerous, and sees all-weather strategies as potentially helpful for retirement sequencing risk, though bureaucracy slows adoption.

Key Arguments: All-weather investing should be built to handle plausible regimes like 1970s-style inflation and 2022-style simultaneous stock/bond losses. Diversification works at the portfolio level, but investors overreact to weak individual sleeves and abandon good overall structures. The 60/40 portfolio benefited from an unusual bond bull market; long-term history suggests stocks and bonds may not always diversify each other. Uncorrelated assets with lower standalone returns can still improve total portfolio outcomes by improving the package’s risk-adjusted return. Trend following should emphasize liquid, scalable risk-transfer markets and not chase obscure instruments that add complexity without meaningful impact. A blended short-, medium-, and long-term trend approach can reduce reliance on one style cycle. International markets, currencies, and carbon credits can be meaningful diversifiers and should not be excluded simply because they are non-U.S. Backtests are often misleading due to look-ahead bias, delisted market omission, data cleanup, and unrealistic assumptions; realism matters more than flashy metrics. Leverage is acceptable when applied to diversified, liquid exposures in a controlled way, but dangerous when used naively on a single asset. For retirement, smoother strategies may reduce sequence risk and improve sustainable withdrawal outcomes, but the industry is slow to accept them.

Data Points: Historical research window: 1970 onward - Crittenden says his research typically starts in 1970 because the data is reliable from then forward. Bond bull market duration: 40 years - He describes the bond environment from roughly 40 years pre-2022 as a major diversification anomaly. Negative stock-bond correlation: About -30% - He cites the 10-year Treasury having roughly a negative 30% correlation with the S&P 500 during the long bond bull market. 10-year Treasury yield: 7% annualized - He says the 10-year Treasury yielded about 7% annualized for 40 years in the favorable 60/40 era. 1968-1982 period: 14 years - He uses this as an example of a nightmare period for a 60/40 portfolio with positive stock-bond correlation and negative real returns. Global GDP share from U.S.: About 24% - He cites this to justify looking beyond U.S. assets for diversification and opportunity. Standpoint live history: Coming up on 4 years - He says the strategy has enough live history for investors to evaluate its behavior across different regimes. Target market coverage: At least 80% - He says Standpoint aims to participate in at least 80% of liquid risk-transfer markets. Typical macro leverage: 2:1 for Standpoint; 4-5x common in macro - He contrasts his firm’s more modest leverage with higher leverage often used by macro managers. Elite manager Sharpe ratio: 0.6 can be elite; over 1 is very hard to sustain - He argues realistic expectations should be anchored to what top managers actually achieve. Sharpe ratio fantasy example: 3 to 4 - He says claims of Sharpe 3-4 are a major red flag and likely indicate overfitting or unrealistic assumptions. Treasure/after-tax/inflation example: 7% nominal becomes ~1% after taxes and inflation; zero after advisor fee; negative after all costs - He uses this to show how nominal returns can be misleading for taxable investors. Retirement concern: 2022 - He points to 2022 as especially harmful to retirees because drawdowns occurred when withdrawals matter most.

Pivotal Quotes: "All-weather to me is simply being prepared for what we know is plausible." — Eric Crittenden: His core definition of all-weather investing. "Envy drives the markets. It drives investor psychology, I think." — Eric Crittenden: He explains why investors still chase stocks and bonds despite diversification benefits elsewhere. "If your back test says you've got a sharp ratio of four... I'm pretty sure you didn't figure out something that Paul and the hundreds or thousands of PhDs and their super computers didn't figure out before you." — Eric Crittenden: He warns against overfitted backtests and unrealistic performance claims.

Implications: Investors should judge strategies by resilience across regimes, not recent popularity or headline returns. The industry may gradually expand beyond 60/40, but adoption will depend on better education, realistic expectations, and better behavior under stress.