Tactical Portfolio Management For Golfers

Tactical Portfolio Management appeals to many investors because the process is mechanical and it is easy to see how a strategy performed under prior favorable and unfavorable market conditions. There is also the very important "quality of life" factor. Because Tactical Portfolio Management is mechanical and uses low-cost, passive ETFs, we no longer have to spend precious hours performing market and company-specific research.

However, Tactical Portfolio Management also requires regular monthly rebalancing to keep our portfolios in tune with current market conditions. Further, we have learned through extensive historical testing that the optimum day on which to rebalance is the last trading day of the month and the optimum time at which to rebalance is the close.

But we've got an invite to play a round of golf that afternoon. So what do we do?

Play golf!

What's a Market On Close?

I've been using Tactical Portfolio Management for quite a few years now. It was my frustration with trying to perform a rebalance during the opening rotation which led to my discovery of a little known, but extremely useful, order type referred to as "Market On Close".

Market On Close is a "Market" order (entered a minimum of 15 minutes prior to the close) which is held until the "closing rotation". The "closing rotation" is the time when buy and sell orders are balanced by the market makers for execution at what will become the settlement price. This is also ideal for our ETFs because the close is also when the ETF sponsors create or destroy ETF shares as required to settle the close at Net Asset Value (NAV).

This is now all highly automated but the key takeaways are that Market On Close (aka "MOC") orders are a) entered prior to the close, b) executed at the close and c) executed at the settlement price. The major brokerage firms all offer this order type but you may have to dig or inquire for details.

There are two reasons I use Market On Close orders to execute all of my Global Strategy trades:.

  • Market On Close orders obtain the same closing prices which are used in the Global Strategy Model
  • Market On Close orders greatly simplify my life because I can enter the orders hours and even days in advance of the Rebalance close.

The trick to scheduling that round of golf

I perform my monthly rebalance from the same Rebalance Notice which is used by subscribers. Doing so provides a final check on what I have prepared.

May's Global Strategy Rebalance will occur at 4:00PM EDT on Thursday, May 31. The Rebalance Notice will be emailed sometime during the weekend of the 27th-28th. When the Rebalance Notice arrives in my inbox this weekend, I will enter the allocations percentages in the calculator to determine buy and sell order size. Then I will fire up Interactive Brokers Trader's Workstation and enter each order:

  • Buy or Sell
  • Order Type = MOC
  • Time in Force = Day
  • Start Date/Time = May 31 @ 8:00AM (this is the date the order becomes effective)
  • Quantity of shares

MOC orders are actually Day Orders. If entering an order on Sunday to be executed at the close on the following Thursday you must tell the order system that the order does not become effective until Thursday morning. The Start Date/Time is the trick to scheduling that round of golf by telling the order system to hold the order until Thursday morning, then make it active for the Close.

This greatly simplifies the process of Tactical Portfolio Management. I will have entered the Rebalance orders days ahead of the actual execution and can do what I want with my time. On Rebalance day (or the evening prior), if I have a few moments, I will pull up the calculator to fine tune the share counts (due to price changes) and update the working orders. I have found that the share counts rarely change significantly over a few hours or even days and if I miss the share counts by a few shares, it is no big deal.

I have accounts at both Interactive Brokers and TD Ameritrade. I have used Market On Close orders at both firms; however each does it a bit differently.

Fore!

Earl Adamy

 

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