Three Ways to Avoid the Eye of the Equity Market Storm

With flexibility, humility and disciplined processes, equity investors can find a way forward.

Severe market stress can undermine confidence in a strategic investing plan. Yet by drawing on historical experience, we can apply trusted investing principles to new challenges.

Veteran portfolio managers have seen big market crises in the 21st century. After the dot-com bubble burst in 2000, the global financial system flirted with disaster in 2008 and 2009. A few years later, Europe’s debt crisis shook global markets. Then, in 2020, a pandemic shut down the world economy.

It may sound cliché, but what doesn’t kill us makes us stronger—and better investors. Each crisis had unique features. And each time, investors learned important lessons, which we added to our toolkits to help us stay focused when the going gets rough. 

Are Things Different This Time?

This year’s volatility feels unusual. Fast-changing US government policies have shaken up the global trade system, making it hard for companies and investors to forecast earnings. The US mega-caps and technology stocks that led markets in recent years are facing a reckoning over valuations and future growth. These are twin megachallenges for investors.

But every crisis was unprecedented in some way. To get through them, we remind ourselves that equity portfolio managers are first and foremost risk managers. As the world changes, our job is to evaluate evolving risks—to companies, industries, sectors and markets—and to make adjustments that enable us to achieve better long-term outcomes for our clients. Staying out of the eye of the market storm is paramount. Three guidelines can help us do that today:

Following these guidelines requires flexibility. As tariffs dramatically change the mechanics of the global economy, investors must adapt. For us, as US equity investors, that means creating a diversified allocation of exceptional growth businesses while leaning into value stocks with quality features.

Balance with Humility and Flexibility

Striking that balance in such tough markets also takes humility. The battle scars of past crises remind us to constantly question an investment thesis and ask whether changing circumstances warrant a rethink.

Falling markets are scary. Even after years of gains, down markets uncover mistakes, excesses and flaws. And when losses mount, emotion often takes over and may lead investors to make counterproductive decisions, like selling in a falling market even though equities often recover rapidly from the most volatile market moments.

But here’s the good news: we can counter those human responses to crises with experience. Applying the lessons we’ve learned with discipline and flexibility can help investors feel more comfortable staying in the market by easing the pain along the way to an eventual recovery.