Does the model invest in individual stocks or individual bonds?
While there may be exceptions from time to time, the answer is basically no. Based on numerous studies, roughly 90% of variances in portfolio performance can be attributed to allocation choices between major asset classes, such as stocks and bonds. Roughly 10% of the value added is dependent upon individual stock or bond selection. Therefore, the best way to add value is to focus on our allocation to asset classes, sectors, regions of the globe, countries, etc.
ETFs are efficient investment vehicles that allow us to focus on “investment buckets”. The allocation between buckets is what matters most, not individual stock or security selection.
Anecdotally, you did not need to pick a winning technology stock during the dot-com boom to make money; technology ETFs and indexes did quite well. Conversely, after the dot-com bust, stock selection would not have helped much since almost all technology stocks got hammered.
While the market model is based on sound economic and investment principles, there is no guarantee any of the objectives will be met in the future. The terms odds and probabilities also speak to uncertain outcomes. Risks are covered in more detail in the CCM Client Agreement and LPOA.