In the past couple of years the market has been exhibiting huge moves both up and down without any corrective moves in between. Last year the S&P 500 fell 250 points in a three week period pretty much in a straight line. From late November through March the S&P 500 climbed relentlessly without a correction. Most recently the S&P 500 has fallen over 90 points in a little over 2 weeks. These types of moves used to be extremely rare but now happen on a regular basis. Hedge funds are to blame.
Years ago mutual funds dominated the investment landscape. While they are still larger than hedge funds they don't make large changes to their equity allocations. If mutual funds as a group move their equity allocation by 1% that is considered a huge move. Hedge funds can move from risk on to risk off in a matter of weeks and they tend to herd. Last Summer they went risk off in tandem and early this year they went risk on in tandem. Hedge funds are the marginal buyer and seller.
Regardless of the reason this is the new reality we are in. This means ensuring one can withstand the persistent moves in either direction. While I feel that this move lower is on borrowed time I am doing little because my portfolio is taking a hit due to individual positions performing poorly. I want to ensure that if we do see something worse I can make it through it.