Should You Touch a Model Portfolio During a Market Fall?
- Alpesh Patel
- Dec 29, 2025
- 3 min read
Updated: 7 minutes ago
Understanding Drawdowns, Daddy Bear Signals, and When Not Acting Is the Right Decision
The Real Question Behind Market Drops
Investors often ask whether discipline truly holds during periods of stress — especially when portfolios fall sharply. The question isn’t really about markets. It’s about regret, fear, and decision-making under uncertainty.
That’s why having a rules-based framework matters more than opinions or headlines.
Client Question: Should I Touch the Portfolio During Big Falls?
Client Question:“Regarding the model portfolios, even if they drop, I don't touch it. Does this apply, even if they drop substantially? I assume any big falls are already built into the historic calculations.”
Short Answer: Yes; With Two Important Exceptions
Yes – broadly that’s the correct mindset: model portfolios are designed to be held through normal drawdowns, because those drawdowns are part of the journey and are already reflected in the historic stats.
But there are two important exceptions, so you’re not running on blind faith.
Rule #1: Normal Falls = Do Nothing
If the portfolio drops because markets are choppy, rates move, headlines scream, or a few holdings wobble – that’s exactly what the historic drawdown profiles already include.
In that situation, touching it usually makes results worse.
This is the behavioural trap most investors fall into: reacting emotionally to events that were mathematically inevitable.
The Two Exceptions: When Action Can Be Sensible
Discipline does not mean stubbornness. It means knowing in advance what would make you act.
Exception A: Market-Level “Daddy Bear” (Risk-Off Signal)
If the broad market (S&P 500 / Nasdaq / global index we use) goes into Daddy Bear territory, that’s the moment where stepping aside to cash can be appropriate, depending on your risk tolerance.
That’s not a daily trade, it’s a regime change.
This is about recognising when momentum has structurally broken, not reacting to noise.
Exception B: Stock-Level Daddy Bear or Quality Breakdown
If an individual holding hits the defined Daddy Bear breakdown, or the fundamentals deteriorate so it’s no longer “quality”, then it may be removed or replaced.
That’s rare — but it’s the mechanism by which losers remove themselves.
But this is where most investors get stuck:
“Meta fell 75% in 2022 — how do you know?”
You don’t.
We probably won’t know in real time whether something is a BlackBerry (death spiral) or a Meta (looks broken, then recovers).
That’s precisely why we hold portfolios, not single ideas.If we expected every company to rise, we’d own just one stock.
A Practical Rule of Thumb for Investors
If you’re holding 3–5+ years and can tolerate volatility: Mostly “do nothing”
If you’d lose sleep in a major bear market: Follow the market Daddy Bear rule rather than improvising during a drop
So your assumption is right: big falls are part of the historic profile; but we still keep clear, rules-based exit conditions for genuine breakdowns.
Why This Framework Actually Works
Academic research consistently shows that improvised market timing reduces long-term returns and increases stress. What improves outcomes isn’t prediction, it’s:
Clear exit rules
Defined risk tolerance
Knowing which regret you can live with
This framework doesn’t promise perfection.It aims for the least regrettable decision over time.
Final Takeaway
This isn’t about avoiding losses altogether. It’s about avoiding unforced errors.
Markets will fall.
Drawdowns will happen.
The edge comes from knowing when falling is normal and when it’s different.
Disclaimer: For educational purposes only. Not personal investment advice or a recommendation. Capital is at risk and investments can fall as well as rise. Past performance is not a reliable indicator of future results. Always consider your own circumstances and seek FCA-authorised advice if unsure.
Alpesh Patel OBE
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