Stocks pulled back a bit yesterday in response to Donald Trump’s threat to shut down the government if he didn’t get his border wall. On this topic, it is important to note that (a) the government is slated to run out of money on October 1 and (b) the House has already approved $1.6 billion for the wall – but the issue appears to be problematic in the Senate.

From a technical perspective, the S&P 500 is basically searching for direction. From a short-term view, stocks are in a downtrend. From an intermediate- and longer-term perspective, the trend of the stock market is in pretty good shape. The key here is that a break below Monday’s low would threaten the health of the intermediate-term trend and embolden the bears.

And with speeches from both Janet Yellen and Mario Draghi on tap in Jackson Hole tomorrow, it is a decent bet that traders may not want to make any big moves today. Unless, of course, Yellen’s speech gets leaked and contains market-moving info, that is.

So, since stocks remain in a seasonally weak period, valuations are in rarified air, and we appear to have some time on our hands this morning, I thought I’d continue our discussion of the various ways investors can manage the risk of severe market declines in their portfolios.

Going Back To The Beginning

When I first entered the business in mid-1980, something called “market timing” was gaining popularity. The idea was to invest 100% of your account either in the money market or the stock market, depending of the reading of various indicators – usually moving averages. Such a concept would have helped the proponents of such strategies to avoid the difficult markets of the 1970’s, which saw the DJIA go mostly sideways for years.

I didn’t realize it at the time, but a couple things made this strategy successful. First, very few people were doing it as the mutual fund industry was in its infancy and calculating a moving average wasn’t easy, requiring a legal pad, a pencil, and a calculator. Remember, charts weren’t available on your phone back then. Heck, cell phones didn’t exist back then.

In addition, an investor could earn a VERY strong rate of return when in the “defensive” money market position. Thus, “market timing” was pretty easy when you were earning 10% annualized sitting in cash.