It’s fun to compare market conditions in the past to current conditions. Unfortunately, it usually isn’t very informative. Since 2000 there have been three instances where our position was changed from a Market Risk Warning (where we’re hedged with something that contains volatility) to a fully hedged position (using a short of the S&P 500). Usually, enough of our core market indicators have turned positive that we come out of a market risk warning into a moderately hedged position.
The first instance was on 6/2/2000 where we tried to add exposure and got whip sawed all the way to 9/5/2000 where we were 60% exposed. Then added hedges every week until we got another Market Risk Warning on 9/25/2000.
The second instance occurred on 6/6/2005 where we slowly added exposure while the market moved sideways and were 60% exposed when our market risk indicator flashed a warning on 8/22/2005.
The last instance happened on 8/21/2006 where we quickly added exposure and were 80% exposed by 10/9/2006 allowing us to catch a good part of the late 2006 rally.
So you can see, with small samples (only 3 occurrences of moving from aggressively hedged to a 100% hedge) history isn’t very informative. So in times like these all we can do is watch and wait to see what happens.