We observe that frequent, small market declines have little impact on a long-term, buy-and-hold investor. Reacting to each one increases the likelihood of being on the wrong side of the market when a reversal occurs. This whipsaw effect is magnified substantially by leverage, and impacts tactical portfolios that shift frequently in and out of the market, or between stocks and bonds. Many tactical managers trade in this fashion.

Like a ship at sea that navigates turbulent waters and changes course only to avoid severe weather, we believe we should stay the course and sail through choppy markets, seeking to steer around extreme conditions only. A defensive strategy that focuses on large, painful market drawdowns may reduce the whipsaw effect and offer a better risk/reward profile.


Source: Graph created by Lyons Wealth Management Buy and sell signals shown above are purely hypothetical and do not represent actual trading by Lyons Wealth or any other manager. The hypothetical index and buy/sell signals are shown for general information purposes and are not meant to represent the Portfolio.