As markets navigate through a period of heightened volatility—driven by the implementation of new tariffs, escalating global trade tensions, and economic uncertainty—we as investors face the challenge of maintaining a long-term perspective. This renewed volatility serves as a timely opportunity to revisit fundamental investment principles that have weathered all market cycles of the past. Personally, this is my 8th market decline of 20% or more since I joined Allen and Company nearly 30 years ago so while it is “normal” it is never easy.
Long-term equity investing historically works, despite volatility.
Recent market performance notwithstanding, volatility is an inherent feature of equity investing. Policy impacts are difficult to predict and quickly priced into markets as companies adapt. For long-term investors, business cycle fundamentals matter more than headlines. On a short-term basis, news stories can have the power to move markets and create stock market volatility. However, these moves are eclipsed by the long-term gains created by market and business cycles.
Recovery takes time after major declines.
The data from the UBS Global Investment Returns Yearbook speaks volumes. This long-term perspective becomes particularly valuable when examining what happens after significant market downturns. While equity investing works, patience is required. The Yearbook notes that there usually are significant recovery periods following major market events: 15.5 years after the Great Depression, a decade following the mid-1970s oil shock, 7.5 years post-dotcom bust, and four years after the 2008 financial crisis. This historical perspective is invaluable when setting appropriate time horizons and expectations of recovery periods.
Diversification within markets is critical.
Perhaps most startling in the report is the examination of 64,738 companies across 42 countries from 1990–2020, revealing that 57% underperformed Treasury bills and 71% failed to beat their respective indexes. However, the top performers more than compensated for any laggards.
This finding illustrates why broad diversification across companies, sectors, and market capitalizations provides the most reliable path to capturing the returns generated by those top-performing companies while minimizing exposure to underperformers.
Market timing is nearly impossible.
The yearbook’s analysis demonstrates that excluding the worst 20 months over the last 125 years would have improved stock-market returns by just over 3% per year, but excluding the best 20 months over the last 125 years would have hurt stock-market returns by nearly 3% per year.
This symmetry reveals a fundamental truth about market timing: Timing the market is futile. Successful market timing is extraordinarily difficult, as investors who exit during downturns frequently miss the powerful rebounds that follow. The data strongly supports maintaining consistent market exposure aligned with one’s goals and risk tolerance rather than attempting to predict short-term market movements.
All-time highs are not sell signals
Despite prevalent anxiety about investing at market peaks, once again data from the Yearbook shows that all-time highs have not historically functioned as sell signals. In fact, many investors who reduced U.S. exposure due to valuation concerns got out too early.
Markets frequently hover near their peaks—spending over 35% of days within 5% of previous highs—and tend to continue performing well afterward, with average returns of 4.8% six months later and 9.6% one year later. This evidence clearly shows why investing at all-time highs shouldn’t be feared and why staying invested is typically more rewarding than trying to time the market.
In today’s environment of renewed tariff concerns, political uncertainties, and market volatility, these evidence-based principles provide a sturdy foundation for investment decisions. These five time-tested themes offer both historical perspective and practical guidance. They remind us that while market narratives constantly change, the fundamental principles of successful investing remain remarkably consistent.
April 2025
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
