I had that thought as I read this article in the Wall Street Journal about investment advisers starting to look at alternatives to buy and hold. According to the article more advisers are exploring tactical moves (ie defensive action) and introducing “new” asset classes into their clients’ portfolios.
Long time readers will know I have been writing about this stuff since 2004 (which is as long as I have been writing). Creating a zigzag effect by whatever means possible with whatever tools available, IMO, gives the best chance for successfully navigating a bear market.
I imagine a few things inspired me in this line of thought including the first few things I ever read about the Harvard and Yale endowments.
While I obviously believe in this line of thought the time to explore this was several years ago not after the second 50% decline for stocks in this decade. One of the reasons I gravitate to the 200 DMA for defensive action is that it triggers early in the bear market. Not at the top mind you but early. Once heeded most of the work is done. No big decisions need to be made just decisions about tweaks and the tweaks are far less important than taking action of some sort when the original breach occurs.
While I generally like the ideas spelled out in the article I think the timing is horrible. Anyone who dropped all 50% is probably better off hanging in there as difficult as that might be. The fastest path to portfolio recovery from cutting in half will not come from selling a bunch of stock low and moving into a bunch of things that do not capture the market’s beta. If volatility hurt you on the way down it probably makes sense to let it help you on the way up, whether the real way up is happening now or not.
In my opinion the time to entertain making big methodological changes should come during bull markets while you’re feeling good not when your state of mind is “if I can only get back to X then I’ll…”
I have no plans for big methodological changes. I have learned a few things in this bear that I hope will help smooth out the next bear phase more so than this one but I will continue to utilize a defensive strategy, incorporate alternatives asset classes and realize that while I might like to buy and then hold that will probably not be the best course of action.
One point of clarification. I would love to be able to hold something forever once I buy it but I do not believe that is realistic.