Patrick, On Pegathy, also an LF38, I have never reefed the main. I have two reef points, but I take it down, or just don't put it up. The boat sails very well under jib alone, and I reef the roller furling jib in very high winds - sailed from Martha's Vineyard to Natucket very comfortably in 40 knots with jib alone reefed to 110%. That includes a very close reach into the inlet. I have hove to in Pegathy with a full genoa, but not in high winds. My understanding is that when hove to, the boat should be going forward. This makes sense, since if you're moving aft with the rudder to windward, the boat will fall off, as you described. You must be going forward for the rudder to have the desired effect. If you had the main too tight, you may indeed have been moving aft. When hove to, the main needs to produce enough drive to overcome the windage of the jib and still move the boat forward. That also means there must be enough angle of attack for the keel to produce lift. At least, that's how I understand it. I suggest the Lin's book; "Storm Tactics" is the name, I think. Pretty thorough discussion of heaving to and other ways to stay below safely in storms.
BTW, I made my own slide gate out of 1/8 in. aluminum bar to make it easier to get the main into the stack pack. Dan Sheer, Pegathy, LF38. Rock Creek off the Patapsco.
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