English writer Samuel Johnson said, “People need to be reminded more than they need to be instructed.”
That sentiment always resonates at time of heightened market volatility. The circumstances may differ, but the playbook for SMI investors is the same: Come what may in the markets, stay with your plan.
“What has been will be again, what has been done will be done again; there is nothing new under the sun” (Ecclesiastes 1:9).
During times of market volatility, there’s a natural desire to do something. Your intuition tells you there must be an action plan for times like this that involves, well, action. The suggestion to stay with your plan seems too basic for an experienced investor, too passive.
That’s what makes Samuel Johnson’s words so spot on. There are countless situations where what you need is not some new insight or instruction but a reminder of what you already know to be true.
“And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!” – Reminiscences of a Stock Operator
Doing nothing can be more challenging than doing something, but it’s an essential skill for successful investors.
“Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.” – Warren Buffett
Reassurance in remembering
SMI’s approach to investing isn’t based on making daily or weekly portfolio adjustments. It isn’t designed for the impossible goal of successfully navigating the market's constantly changing (short-term) winds. Our strategies are based on trend-following and momentum. That means aligning with bigger-picture, longer-term trends. Our process won’t catch most changes in direction right at the inflection point; rather, it’s designed to realign holdings after new trends become evident.
SMI’s two core strategies, Fund Upgrading and Dynamic Asset Allocation, are designed not only to align with market trends, but both also have a degree of downside protection built in. That doesn’t mean they won’t ever incur a loss. It just means that when true downward trends develop, the strategies are designed to respond with some protective measures. Fund Upgrading will move incrementally to cash, and DAA will move toward the more defensive of the six main asset classes it monitors.
However, again, it won’t make those moves suddenly. During the Great Financial Crisis, which lasted from late 2007 until early 2009, backtested data (DAA was launched in 2013) shows DAA would have lost money in 10 of those tough 16 months. However, because of the way the strategy repositioned its holdings, DAA would have lost only -1.4% during that entire bearish period when the stock market fell -51%!
That means you don’t have to try to outsmart the system; you just have to stay with the system.
Hopefully these reminders will help you stay the course during this current bout of market volatility.
