Systematic Investing

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.