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Audacity Strategy

- the willingness to take bold risks

Turbocharging Success

The Audacity Strategy is a turbocharged version of Patton's existing hedging strategy designed to produce returns that are 2 - 4 times the S&P 500 with a risk profile, based on various metrics, similar to that of the S&P 500. The existing strategy has proven successful over the last 10 years making it one of the top performing long/short U.S. equity strategies in the world since its launch in February 2010. In addition to 10 years of proven success, the Strategy is supported by research spanning 5 decades of market data.

Goal

Be the best performing long/short U.S. equity strategy in the world over the next decade.

Investment Strategy Overview

Investing in the Audacity Strategy requires taking a bold but very calculated risk. The Strategy is purely mathematical designed to systematically take advantage of other investors' poor human behavior. It is supported by both proven success and extensive research and testing.

Here are some highlights:

  • 100% highly liquid U.S. stocks
  • Hedging strategy that profits from some positons when they go up in value and profits from other positions when they go down in value
  • Behavioral Finance investment principles
  • Rules-based model – the investment principles are implemented entirely by a set of static mathematical rules, with no human emotion on our part, to take advance of the behavioral-based principles

Exceptional Performance Expectations

Goal of 2 – 4 times the S&P 500

Audacity’s simulated net performance since July 1963 is +41.6% compounded annually.

Success NOT reliant on the S&P 500

Audacity is unlike nearly every other high performing strategy of the past decade in that it is NOT reliant on the S&P 500 going higher to produce a strong return. Mathematics, specifically the statistic R-Squared, illustrates this characteristic.

R-Squared Defined

R-Squared: measures the portion, or %, of an investments performance that is the result of the S&P 500’s performance.

Audacity's R-Squared: 12%

Benefits of LOW R-Squared

Strong positive performance is NOT dependent on the S&P 500 going higher. For nearly every high performing fund of the past decade to continue going higher, the S&P 500 must continue going higher. That is NOT the case for Audacity as it’s low R-Squared suggests it can perform well regardless of the S&P 500’s performance.

An additional benefit of investment strategies with a low R-Squared is the possibility of reduced losses during times when the market is down. During the past 10 years, the S&P 500 has been down 33 months. During these 33 months, the S&P 500 averaged a loss of -3.3% while Audacity was down just -1.0% on average during these same 33 months.

High Volatility: 2 - 3 times the S&P 500

Volatility is the biggest price you will pay for the high expected returns of the Audacity Strategy. This is a high octane strategy with significant gains and losses often occurring rapidly as illustrated in the accompanying table.

Risk of Loss

Maximum Drawdown (biggest loss ever since 1963)

  • Audacity: -40.4%
  • S&P 500: -50.9%

Although the maximum drawdown is worse for the S&P 500, the Audacity experiences more frequent drawdowns of less magnitude as illustrated in the table.


Return on $1.00

The accompanying table shows the value of $1.00 invested over various lengths of time.

Is Audacity for you?

  • Do you have stocks or stock funds in your portfolio?
  • Do you need an investment that could perform well regardless of the overall market's performance?
  • Can you financially and psychologically handle repeated short-term volatility in a portion of your portfolio?
  • Would you like to meaningfully improve the expected return of your portfolio with no added portfolio risk?
  • Are you concerned about the possibility of a bear market?

Audacity is NOT for every investor but if you answer yes to any of the above questions, it is an investment you should likely consider.

Footnotes

Flex Strategy is Patton’s existing hedging strategy. See: https://www.pattonfunds.com/flex-strategy.html

All Audacity performance calculations are simulated and net of estimates fees.

Calculations are based on monthly returns unless otherwise stated.

Analysis Period: 12/31/1971 - 11/30/2019 unless otherwise noted.