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How Trend Following Handles Market Shocks & Drawdowns

How Trend Following Handles Market Shocks & Drawdowns

When we travel by air, my wife usually points out that she thinks it would be better if people by windows boarded first; that way, anyone in an aisle or middle seat wouldn’t have to keep standing up. Meanwhile, I think the Southwest Airlines style of pick-any-open-seat is optimal.

Our gut feelings were recently rendered irrelevant when we ran across an old episode of “MythBusters.” In it, the cast built a mock 173-seat aircraft and tested several boarding approaches using real people and luggage.

Relying on the data cut through our emotional biases. It also inspired me to take a similar data-backed look at a common question I hear about systematic investing: Is this style of investing capable of reacting fast enough to declining markets? Our team heard this question several times during late July and early August, as the S&P 500 experienced a decline of 8.5%.

To dig into that question, I think it’s helpful to first acknowledge that not every market decline is the same. Said another way, these are not synonyms: shocks, sustained declines, crashes, and bear markets.

How Trend Following Handles Market Shocks & Drawdowns

By: Jon Robinson
Category: Systematic Investing
Spiral staircase winding down

How Trend Following Handles Market Shocks & Drawdowns

Two fighter jets flying together

Trend Following: An Exit on the Highway to the Danger Zone

Trend following can provide clear guidance about if – and when – to buy “trendy” stocks, as well as if – and when – to sell.
Still image from “The Shawshank Redemption” movie

Hope Is a Strategy (Just Not a Good One)

Hope (as a verb) is a poor strategy for investing. Hope (as a noun) is the result of thoughtful design and consistent execution (i.e., having hope not AS a strategy but BECAUSE of your strategy).
Hands passing a seedling to the next person

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