Bear markets arrive on their own schedule and without any warning, and nobody has ever figured out how to stop one. What you can control is whether you are standing in the room when one walks in.
That is the whole trick, and it is less glamorous than it sounds. We watch the door. When the trend in a sector turns down and stays down, the rule quietly shows that slice of your money out the back, into cash, and lets it wait there until the coast is clear. We learn the day a bear arrives the same way everyone else does, which is why we keep a standing policy of leaving the room early instead.
The record says the policy is worth keeping. In 2008 the market fell 55 percent. The rule held the strategy to about 15 percent. Run sector by sector through the Great Depression, the deepest hole in American market history, and it took a little over a third of the market’s pain. In most losing years since 2000 the rule has cut the damage, and in a couple of them, 2001 and 2015, it cost a little instead.
John