The Prosperity Protocol

Issue #2 - April 16, 2025

Editor's Note: Welcome back to our second issue of The Prosperity Protocol! After receiving such positive feedback on our first newsletter, I'm thrilled to continue our journey toward investment clarity. This week, we're focusing on building resilience in your portfolio during uncertain times. As market volatility continues to challenge investors, having the right mindset and strategy becomes more crucial than ever.

Ever wonder why some investors seem unfazed during market downturns while others panic?

Have you found yourself checking your investment accounts multiple times daily when markets tumble, feeling that knot of anxiety tighten with each refresh?

You're not alone. The psychological aspect of investing is often overlooked, yet it's arguably the most critical factor separating successful investors from the rest. While we focused on investment accessibility in our first issue, today we're diving into the mental framework that helps weather market storms.

The Resilience Advantage

Market history teaches us one consistent lesson: volatility is normal, not exceptional.

I remember my first major market correction as an investor in 2008. I'd built what I thought was a "perfect" portfolio, only to watch it drop over 30% in what felt like the blink of an eye. My reaction? I panic-sold near the bottom—a decision that cost me years of potential growth.

Contrast that with my approach during the 2020 pandemic crash. Instead of selling, I strategically added to positions in sectors poised for recovery. The difference wasn't just experience—it was having developed mental resilience and a systematic approach to volatility.

Today's market environment demands this resilience more than ever. The good news? It's a skill anyone can develop.

Your Three-Step Portfolio Resilience Blueprint

1. Design Your Portfolio with Volatility in Mind

Many investors build portfolios for ideal conditions, then scramble when reality hits. Instead:

• Incorporate defensive assets that typically move differently than your growth investments

• Consider your personal "sleep well at night" threshold when allocating to higher-risk sectors

• Use position sizing to manage risk—investments with higher uncertainty should represent smaller portions of your portfolio

For example, rather than going all-in on growth stocks, consider how adding treasury bonds, consumer staples, or utilities might reduce overall portfolio volatility without sacrificing too much long-term return potential.

I recently worked with a reader who reduced their portfolio's volatility by 30% simply by reallocating 15% of their holdings from aggressive growth stocks to a mix of dividend aristocrats and short-term treasury bonds—with minimal impact on their expected returns.

2. Transform Market Drops into Strategic Opportunities

Market declines aren't just something to endure—they're potential opportunities for those prepared to act systematically:

For long-term investors:

• Establish automatic buy thresholds for core positions (e.g., "add 10% to position when it drops 20% from high")

• Keep a "watchlist portfolio" of quality investments you'd like to own at better prices

• Maintain a dedicated "opportunity cash reserve" separate from your emergency fund

For more active investors:

• Consider implementing strategic hedges during periods of heightened uncertainty

• Learn basic options strategies like protective puts or selling covered calls to generate income during sideways markets

• Use technical support levels to guide entry points during corrections

The current correction has already created compelling valuations in several sectors, particularly in quality companies that have been unfairly punished by association with their troubled peers.

3. Develop Your Personal Market Volatility Protocol

Having predetermined responses to market movements removes emotion from the equation:

• Create a written investment policy statement detailing your approach to different market scenarios

• Establish specific checkpoints for portfolio review (quarterly is often sufficient) and avoid daily monitoring

• Define exactly what information sources you'll trust during market turmoil—and which you'll ignore

My own protocol includes limiting market news consumption to just 30 minutes weekly during volatile periods and focusing instead on company-specific developments that affect my long-term thesis for each holding.

When the recent selloff began, this approach helped me avoid the noise and focus on fundamentals, ultimately adding to several positions that had become significantly undervalued.

Market Watch: What to Look For This Week (April 14-18, 2025)

Last week's market action continued the correction pattern, with the S&P 500 showing signs of stabilization toward the end of the week after finding support at the 200-day moving average. Bond yields have retreated slightly as investors seek safety, while gold has reached new all-time highs.

Key events to monitor this week:

• Wednesday, April 16: Housing Starts and Building Permits reports will indicate the health of the housing market

• Thursday, April 17: Initial Jobless Claims and Philadelphia Fed Manufacturing Index offer clues about employment and manufacturing activity

• Friday, April 18: Existing Home Sales data completes the housing picture for the week

The financial sector earnings released last Friday showed mixed results, with JPMorgan Chase and BlackRock outperforming expectations while Wells Fargo disappointed on net interest income guidance. This week brings a broader range of earnings reports across multiple sectors, providing a more comprehensive view of business conditions.

Pay particular attention to tech earnings, with Intel, Netflix, and Taiwan Semiconductor reporting this week. Their guidance will be particularly telling about supply chain issues and consumer sentiment in the tech space.

Term of the Week: Drawdown

Drawdown – The percentage decline from an investment's peak value to its lowest point before establishing a new peak. For example, if your portfolio grows from $100,000 to $150,000, then declines to $120,000 before rising again, you experienced a 20% drawdown ($30,000 decline from the $150,000 peak). Understanding your personal tolerance for drawdowns is essential for building a sustainable investment strategy.

Reader Q&A

Question: "With inflation still running hot and markets in correction territory, should I be looking at gold or other precious metals as a hedge?" – Sarah L.

Answer: Great question, Sarah. Precious metals, particularly gold, have traditionally served as inflation hedges and safe havens during market uncertainty—a role they're currently fulfilling with gold hitting new highs. However, their effectiveness varies considerably depending on the specific economic environment and your time horizon.

Rather than making a large allocation shift, consider adding a small position (perhaps 5-10% of your portfolio) to gold through an ETF like GLD or IAU. This provides some hedge without overcommitting. For more inflation protection with growth potential, you might also explore Treasury Inflation-Protected Securities (TIPS) or dividend-growing companies with pricing power that can pass inflation costs to consumers.

Remember that gold produces no income or earnings and historically has had long periods of underperformance. It works best as a portfolio component rather than a central strategy.

This Week's Top Tools & Services

Disclaimer: This newsletter includes affiliate links, meaning I earn a commission from qualifying purchases at no extra cost to you. Every product mentioned has been thoroughly researched and personally tested. Thank you for supporting this newsletter!

Staying on top of your investments requires the right tools. Here are three standout options that can help simplify your investment journey:

1. Alpha Picks – For Data-Driven Stock Recommendations Alpha Picks is Seeking Alpha's premium stock recommendation service that delivers two thoroughly researched stock picks per month. Using a proprietary quantitative system, they've achieved impressive results with a total portfolio return of over 127% since launching in July 2022, significantly outperforming the S&P 500. Perfect for investors who want expert, data-driven recommendations without doing extensive research themselves.

Exclusive Membership Offer*: As of April, Seeking Alpha is offering a special discounted membership on Alpha Picks through the link below. Instead of the standard $499/year, you can enjoy the full benefits for $449/year, saving $50/year on the service! Click to unlock this limited-time promotion!*

2. Stock Rover – For Deep Research & Analysis If you're looking to make more informed decisions about your investments, Stock Rover provides powerful stock research tools and portfolio management in one platform. Its comprehensive screening capabilities and detailed portfolio analytics help identify both weaknesses and opportunities in your holdings. Their service starts at approximately $8 monthly with higher tiers for advanced features.

3. Empower (formerly Personal Capital) – For Full Financial Picture For those wanting to see how their investments fit into their broader financial life, Empower offers a free financial dashboard that connects all your accounts – from investments and retirement to credit cards and loans. The platform provides valuable insights on investment fees, asset allocation, and retirement readiness without any cost for the basic service.

All three tools offer mobile apps, making it easy to check your investments on the go, and provide different levels of automation to reduce the time you spend managing your portfolio.

Today's Action Steps

1. Measure your portfolio's historical drawdown using your brokerage's analysis tools or a service like Morningstar Portfolio Manager. Understanding how your investments have behaved during previous corrections provides perspective for the current market environment.

2. Draft a one-page "Market Volatility Response Plan" detailing specific actions you'll take at different market levels. Include both defensive moves (what you'll sell and when) and offensive opportunities (what you'll buy and at what prices).

3. Implement one new risk management technique this week, whether it's setting alert levels, establishing trailing stops, or creating a hedging position for your most volatile holdings.

More In-Depth Analysis

Want more comprehensive investing insights? Check out my Medium publication “Investor’s Handbook” where we explore investment strategies, market trends, and financial tools in greater detail.

Visit My Medium Publication → Here

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Remember – investment success isn't about avoiding volatility, but having the tools, mindset, and strategy to navigate it confidently.

Until next week, Todd Lincoln

This newsletter is for educational purposes only and does not constitute investment advice. Always conduct your own research before making investment decisions.