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Market Selloffs: What Doesn’t Work and What Does
“Everybody in the world is a long-term investor until the market goes down.” – Peter Lynch
I know I sound like a broken record. I get it. But don’t tune out just yet—because while every selloff feels different, the right approach stays the same.
If you’ve been investing long enough, you know the cycle: markets go up, markets go down, and sometimes the down happens faster than the up. What’s happening now isn’t new, but that doesn’t make it any easier.
Let’s break it down.
What Doesn’t Work in a Market Selloff
1) Following the Loudest Voices
Market selloffs bring out the loudest voices in financial media. Fear sells. You’ll see bold predictions of recessions, bear markets, and financial doom.
Need proof? History is full of bad forecasts:
- The feared “double dip” recession in the early 2010s? It never happened.
- The Economic Cycle Research Institute’s 2011 recession call? Wrong.
- The supposed “Lost Decade” after 2008? Didn’t happen.
- The IMF’s 2020 global recession warning? Many economies rebounded fast.
- The 2022–2024 yield curve inversion? Supposed to signal an imminent downturn—yet growth persisted.
Even Nouriel Roubini, who nailed 2008, has made multiple bad recession calls since.
There are no facts about the future. Everyone is guessing. Reacting to every headline leads to bad decisions. No one has a perfect track record of calling market tops or bottoms.
Instead of getting caught in the noise, focus on what you can control: your time horizon, cash reserves, and risk tolerance.
2) Searching for a Magical Signal
Every time markets drop, people try to time the bottom, as if there’s a secret “buy” signal. There isn’t. Just like there isn’t a clear signal for market tops.
Sure, traders analyze moving averages, support levels, and trendlines. That’s fine—we do it too. But markets don’t move in straight lines. Waiting for the perfect entry point often leads to doing nothing… or worse, buying back in after prices have already rebounded.
3) Panicking and Selling Out
Selling after a drop is the worst strategy—especially if you already have cash set aside for planned expenses.
Markets rise over time, but the path isn’t smooth. Consider this:
- The S&P 500 averages a 5% drop every 3.5 months.
- A 10% drop happens every 11 months.
This is normal. Selling during these declines locks in losses and guarantees missing the recovery.
What Does Work
At Monument, we keep it simple.
1) Have a Cash Reserve
This serves two purposes:
- A Hedge – Forget options, structured notes, hedge funds, or illiquid alternative investments. Cash is THE BEST and CHEAPEST hedge against market corrections—especially when it carries a good interest rate relative to inflation.
- A Buffer – Our planning strategy sets aside 12–18 months of cash when markets are strong. We top it off over time so that when downturns happen, you’re not forced to sell at a bad time.
2) No Guessing
- No matter what people are saying on TV, there are no facts about the future.
- If your portfolio was built correctly from the start, there’s no need to react to short-term movements. Every investment decision should be rules-based and aligned with long-term goals—not short-term emotions.
Final Thoughts
Market corrections are uncomfortable, but they’re part of investing. What doesn’t work is trying to outguess the market, reacting to short-term fear, or searching for a perfect signal that doesn’t exist.
What does work is having a plan—a plan that includes cash reserves, discipline, and an understanding that markets go up over time, but not in a straight line.
If you’re feeling anxious about the current selloff, let’s talk.
Keep looking forward.
David B. Armstrong, CFA®
President & Co-Founder
Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....
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