Despite the unusual driver of this particular near-bear market, the market itself has acted fairly predictably, and maybe that’s the main takeaway. Every downturn has its own character and will not simply hew to history, but knowing and understanding market history, especially in the heat of the moment, is a powerful tool.
Diversifiers Work
From a portfolio perspective, the takeaways are that diversification is important, but it’s not enough to rely on a single source of diversification in a portfolio all the time. It’s important to understand what environment you’re in, and if the environment is uncertain, as we think the current one is, having exposure to different kinds of diversifiers can be beneficial.
Pay Attention to Sentiment
April 8: “The VIX soared to above 60 yesterday morning, hitting levels that historically have marked major bottoms for stocks. In simple terms, when the VIX hits 50 for the first time in a month it has probably been preceded by poor performance driven by panic, likely suggesting better times are coming. In fact, the S&P 500 has gained more than 20% on average a year later after the VIX spikes above 50.”
April 16: “Stocks were flirting with a bear market until President Trump put a pause on all reciprocal tariffs (excluding China) for 90 days on Wednesday, April 9. The S&P 500 responded by gaining 9.5% in one day, the third best single day since World War II. Like a beach ball under the water, once it gets some momentum, it can really start moving.
Historically, stocks that come down are often winners on the way up
It’s easy to see that many of the losers in the sell-off have flipped to winners in the rebound. For me, one of the grand takeaways from all of this is just reinforcement of the basic lesson that investing takes patience. Being “risk tolerant” doesn’t mean that you’re not going to feel bad when markets are down. It means that you know downturns are going to occur, you know you’re going to feel bad, and you are prepared to ride out the emotions. That may be the most important lesson for being an effective long-term investor. Volatility is the toll we pay to invest.
Busy And Useful 