“These are the times that try men’s souls. The summer soldier and the sunshine patriot will, in this crisis, shrink from service of their country; but he that stands by it now deserves the love and thanks of man and woman.”
From “The Crisis” by Thomas Paine, 1776
By Scott Welch, CIMA®, CEPA®, Chief Investment Officer & Partner
Reviewed by Carter Mecham, CMA®, IACCP®
This quote comes from American patriot Thomas Paine. It was the opening sentence of a series of pamphlets he issued in late 1776, which was a low point for the American colonists in their struggle for independence from England.
The colonists had lost most of the battles they fought, the soldiers were unpaid, disorganized, and starving, and the foundling federal government was still powerless. At this point in time, the overwhelming probability was that the British would crush the rebellion and restore colonial rule.
Why the history lesson? For many investors, the current market environment is, indeed, a time that is trying their souls.
The US and Israel are in a war against Iran – a war that has rapidly spread into regional and perhaps even global dimensions as Iran attempts to dramatically reduce the world’s oil supply by shutting down the Strait of Hormuz, through which roughly 20% of the global oil supply is transported.
Here in the US, we are facing additional if not so cataclysmic uncertainties. The Supreme Court recently ruled that President Trump’s “Liberation Day” tariff policies went beyond his authority and were therefore unconstitutional and immediately cancelled.
Trump promptly reinstated tariffs at a certain level under a different statute, but that has come under scrutiny as well. Meanwhile, companies that paid those tariffs are scrambling for ways to be reimbursed, but it is not obvious whether there is a predefined protocol for doing so. The corresponding effect on the economy is unknown.
We also have uncertainty about the overall state of the economy, inflation, and the labor market.
We seem to be witnessing a broad market rotation out of the mega-cap tech stocks and into other asset classes and styles, but it is early in the game, and we simply don’t know if this a lasting rotation or a “head fake.”
There remains uncertainty over future Fed policy in the wake of both the war and the installation of a new Fed Chair in May.
There has been a great deal of media attention to potential “cracks” in the private credit market – a very popular allocation with many investors over the past several years. Whether or not that concern is warranted is almost beside the point – it is headlining news at the moment.
A primary driver of uncertainty is the fluctuating price of oil due to the war, uncertainty over how long the war will last, and the corresponding effects of both global economic growth and inflation.
Source: Bloomberg “Points of Return”, March 10, 2026.
And, just to top it all off, we are entering into what will undoubtedly be a tightly contested, highly partisan, and highly acrimonious mid-term election season (we are already seeing campaign ads!). The results of those elections may dramatically change how Washington functions (or not) over the remainder of Trump’s administration.
Is it any wonder that consumers and investors are feeling uncertain and not overly optimistic?
Source: dShort, The Conference Board, and the University of Michigan, February 2026. It is relevant to point out that these surveys were taken before the outbreak of the war with Iran.
The result is somewhat inevitable (though not, we hasten to add, entirely rational): markets around the world are falling and volatility has come screaming back into the picture. If greed is one side of the investment coin, its evil brother fear has taken over.
Source: The Daily Shot, March 9, 2026. The VIX is a measure of equity market volatility, and the MOVE is a measure of bond market volatility. You cannot invest in an index and past performance is no guarantee of future results,
Despite the recent turmoil, we remind our clients of our fundamental investment philosophy. We have consistently recommended the following investment approach for taxable high-net-worth investors:
- Broad and global diversification at both the asset class and risk factors levels
- Maintenance of appropriate liquidity to meet investor objectives and cash flow requirements
- Intelligent use of active and passive managers to try and optimize both fees and taxes
- The use of legally-available tax and estate planning strategies to optimize the after-tax returns of their portfolio
- Appropriate use of non-traditional (alternative) or private investments because of their potential diversification and return benefits
- Discipline to an agreed-upon investment policy
- Long-term investment discipline (at least 5-7 years)
- And not trying to time the markets
Let’s face it – discipline to the above investment principles is difficult in any chaotic market. The natural human inclination, as investment legend Peter Bernstein put it, is to emulate the cockroach and run like hell at the first sign of danger.
It works for the cockroach, but it can be a dangerous strategy for most investors.
Common Investor Reactions to Volatility and Uncertainty
The volume and “decibel level” of media attention discussing current market conditions is a bit overwhelming. In speaking with clients, we should be cognizant of the fact that they are being fed a relatively nonstop stream of fear-inducing news about the war, tariffs, potential recession, the re-emergence of inflation, the state of the economy, protests, potential corruption in the form of “The Epstein Files”, and so forth.
Any good news or optimism that may exist is either not highlighted or is simply lost in the tidal wave of bad news. It is not denigrating the media to point out the truth that “bad news sells”, and that what is most important to realize about the media is not what it covers, but what it chooses to not cover.
So, what are common investor reactions in times of uncertainty and fear?
Common Reaction #1: “You don’t understand – this time it’s different.”
It can be very common to feel that the crisis you are in right now is the biggest crisis ever. But whenever we hear the phrase “this time it’s different”, we think about the old adage that if women accurately remembered the pain of childbirth, no one would ever have more than one.
However bad things may have been in the past tends to fade and mellow with time, thereby heightening the seeming magnitude of the current environment.
Let’s provide a brief list of events in the past 35 years that caused a similar (or greater) level of uncertainty in the markets:
- The Savings & Loan crisis, Long-Term Capital Management’s collapse, and the “Asian Contagion” of the 1990s
- The bursting of the tech and telecom bubbles in the early 2000s, followed by 9/11 in 2001
- The Great Financial Crisis of the late 2000s
- Arab Spring and the rise of ISIS in the 2010s, which caused great unrest throughout the Middle East
- COVID in the early 2020s
- The Outbreak of the Russia/Ukraine war in 2022
- The attack by Hamas on Israel in 2023
That is a pretty frightening list of events. Did they create volatility, uncertainty, and fear when they were occurring? Of course they did. We were working in the investment industry during every one of these episodes, and none of them were fun to live through – at the time.
But now let’s look at how the stock market performed over that time using the S&P 500 index as a proxy. We like to refer to this as a “Rip Van Winkle” chart – how would investors have done if they invested back in 1990 and then went to sleep until today?
Source: Ycharts, data from January 1, 1990 – March 9, 2026. You cannot invest in an index and past performance is no guarantee of future results.
Isn’t it amazing what widening your personal “x-axis” (that is, lengthening your time horizon), can do? The point of the exercise is to encourage investors to lengthen their field of vision and focus on the long-term.
There is no question that the current market environment is uncertain. And yes, things are different this time, because things are different every time. But the global economy and the ingenuity of entrepreneurs and workers have always bounced back. We are not gamblers but, if we were, our money would be on long-term investment success – if you don’t panic now.
Common Reaction #2: “I will get out now and come back in once it’s safe.”
Behavioral Finance is the study of why generally rational investors so frequently make seemingly irrational decisions about their money. One concept within Behavioral Finance is known as the “Gambler’s Fallacy.”
Think of someone playing blackjack in Las Vegas. How frequently might you overhear them say, “I’ll know when it’s time to get out”? And how frequently will they be wrong?
It is natural human behavior to possess this gambler’s fallacy – to have an exaggerated perceived ability to identify trends and predict turning points in those trends.
The investment facts indicate otherwise.
Consider the following chart, which illustrates typical investor performance versus the return of an index in which they are invested. Investor “misbehavior” costs them dearly.
Source: Dalbar, Lance Roberts, and Investing.com, August 29, 2023. For illustration purposes only. You cannot invest in an index and past performance is no guarantee of future results.
Now consider the following chart, which illustrates the performance of three different investor reactions during market downturns with an initial $10,000 investment.
Source: Davis Advisors. For illustration purposes only and does not represent investment advice. You cannot invest in an index and past performance is no guarantee of future results.
Now compare the differences in return for investors who try to time the market and therefore potentially miss out on some of the best-performing days.
Source: Davis Advisors. For illustration purposes only and does not represent investment advice. You cannot invest in an index and past performance is no guarantee of future results.
Finally, the perceived ability to successfully time the market (versus the reality of failing miserably at doing do) is captured in the following comic graphic, which we received back in the early 2000s, when the tech and telecom bubbles were bursting. We received this (anonymously) more than 25 years ago. but it remains just as applicable today.
Getting out now (the cockroach strategy) and then assuming you will know when it’s time to come back is, statistically speaking, a loser’s game.
If your long-term investment objectives require you to be in the stock market, you are better off being in it through the ups and downs than trying to jump in and out opportunistically.
This is why dollar-cost-averaging can be a good idea for so many people. It is, to a certain degree, a form of self-imposed trading discipline that mitigates the temptation to try and time investments into or withdrawals out of your portfolio.
Source: Davis Advisors. For illustration purposes only and does not represent investment advice. You cannot invest in an index and past performance is no guarantee of future results.
Common Reaction #3: “I’ve reached my point of capitulation – just get me out!”
It is quite common when markets get especially tough for many investors to simply throw in the towel all together. Nothing like storing your money in nice safe, insured, bank CDs and Treasury bonds, right?
Unfortunately, no. While burying your money in a coffee can in the backyard may feel safe, it ignores the insidious effect of inflation.
The fact is that earning less on your money than the rate of inflation is the economic equivalent of incurring a loss in the stock market.
The result is the same – your money will purchase less in the future than it does today, as illustrated in the following chart. This shows the purchasing of $1.00 in 1984 versus the purchasing power of that same dollar at the end of 2025.
Source: St. Louis Fed (FRED), from January 1984 – December 2025.
In other words, the purchasing power of a dollar has fallen roughly 70% over the past 40 years.
No investor would accept a 70% loss on their stock portfolio over the same time frame, but somehow having inflation eat away at their money feels “safer” to many investors.
The other aspect to consider when investors feel the urge to capitulate is that it usually occurs at the absolute worst possible time – right at the point of locking in maximum loss.
Once again, we can look in our Behavioral Finance textbook and find an explanation for this behavior. The concept of “Prospect Theory” (a theory which earned its creators a Nobel Prize in Economics) suggests that humans dislike “pain” roughly twice as much as they enjoy “pleasure”. In investment terms, investors have an asymmetrical view of risk – they hate downside risk more than they enjoy upside reward.
Adapted from the work on “Prospect Theory” from Danile Kahneman and Amos Tversky. This is for illustration purposes only and does not represent investment advice.
It is a highly understandable response to want to take flight and put your money in “safe” investments. But it is critical to remember that “risk” takes many forms.
It is not simply the volatility of the stock market. Selling out at the bottom, missing part of any recovery from that bottom, and the loss of purchasing power because of inflation are also forms of risk that must be considered.
Summary and Interpretation
So, what to do? Do the above arguments dictate that investors simply “hang in there” and wait for things to get better? Not at all – they simply illustrate that decisions should be made in as rational a manner as possible and with the long-term in mind.
One reason we recommend diversification is the power of compounding – if you don’t lose as much in a down market, you don’t need to make as much in an up market to still come out ahead.
Source: Nationwide IMG Competitive Intelligence Team.
With this in mind, what are some potential courses of action investors might take?
Here are some ideas:
- Revaluate your personal tolerance for risk. Taking a page from Prospect Theory, many investors may determine that their appetite for risk – now that they may be experiencing the downside part of the equation – is quite different (and lower) than they believed. If your time horizon or blood pressure do not allow you to endure volatile markets, then reallocate to a more conservative portfolio – keeping in mind that your portfolio needs to beat inflation to be successful over the long-term.
- Take advantage of the market downturn to rebalance your portfolio. Most markets, and therefore most portfolios, have performed strongly over the past 3-5 years. This translates into unrealized taxable gains – gains that may have partially gone away in the recent market collapse. While most investors would rather have gains and owe taxes, now may be a good time to make any portfolio moves you were holding back on because of the associated tax hit. Associated with this is the strategy of harvesting any tax losses within the portfolio that you can use later to offset gains as the market recovers.
- Think opportunistically. No one can predict when the war will end and/or where the bottom will be in various markets. However, if you have investable money you are willing to make a tactical move with, there may be some interesting opportunistic investment ideas available.
- Don’t panic, stay disciplined, and think long-term. Cliché advice, we know. But it is a cliché because it is true. Whatever portfolio moves you decide to take, take them with the long-term in mind and in accordance with a well-thought-out investment strategy and objective.
This is a volatile time in the market, and it naturally invokes anxiety, uncertainty, and perhaps even fear.
We don’t know when it will get better, but we believe that, ultimately, it will.
These are, indeed, times that try men’s souls. But to paraphrase Thomas Paine, fear-induced “summer” investors and “sunshine” investment strategies will, in this market environment, shrink away from success.
The keys to long-term investment success have not changed: be diversified, manage liquidity wisely, think long-term, and stay disciplined.
Investors who adhere to this investment approach will live to fight another day and earn “the love and thanks of man and woman.”
We hope you find this helpful, and as always are happy to discuss further or answer any questions you may have.