Investors have been surprised by the sharp pullback in markets. They shouldn’t be, as I’ve repeatedly warned in recent months about overblown talk of US exceptionalism and irrational exuberance developing in several areas including US and Australian tech, some large caps stocks such as CBA, Bitcoin, and private credit. That’s not to float my own boat but because all of this seemed obvious at the time.
And guess which parts of the markets have been hit hardest? The most exuberant, of course.
% Below 52-Week High
US Bonds: -2%
Gold: -2%
S&P 500: -9%
ASX 200: -10%
CBA: -13%
Apple: -15%
Russell 2000: -18%
Microsoft: -18%
Meta: -18%
Amazon: -19%
Google: -21%
Bitcoin: -24%
Nvidia: -29%
Palantir: -39%
MicroStrategy: -52%
Tesla: -53%
Ethereum: -53%
Dogecoin: -66%
Trump Coin: -86%
Fartcoin: -90%
As at midday 12/3/2025. Source: Creative Planning, Firstlinks
Some normally uber bullish investment banks are turning bearish. JP Morgan now thinks there’s a 40% chance of a US recession. Goldman Sachs macro trader Paolo Schiavone has switched into Jeremy Grantham mode, by saying "[t]he fragility of the current setup suggests that equity returns will remain challenged," with "the biggest risk ... not a financial crisis, but something arguably worse: a slow, grinding bear market that could persist for years. Without a major credit event to force a reset, the downturn could follow the 2001-2003 playbook - marked by weak rallies, multiple false bottoms, and lower lows as economic momentum fades." And: "While short-term relief rallies are possible, structural headwinds persist, making sustained upside difficult."
Should you buy into this gloom? And, what should you do with your own portfolio?
The challenge in market downturns like these is more emotional than intellectual. A good strategy is to zoom out from the short-term noise. To ‘reframe’ the situation, as psychologists like to call it.
By doing this, we can see the following:
1. Market corrections like the current one are normal.
Since 2000, 15 out of the 24 years have witnessed double-digit intra-year declines. In other words, if the last 24 years are a guide, you can expect intra-year falls of 10% or more about 63% of the time.
2. Most of the time, market corrections reverse quickly.
The above chart also shows that if the market goes down by double digits in a year, there’s still a 60% chance that it will end up in the green for the entire year.
3. Just 1 in 5 years has losses of 10% or more.
This is different from the first chart because it measures yearly performance rather than intra-year. As you can see, years finishing with falls of 10% are reasonably rare. Of the past 151 years of the S&P 500, there have been 29 years of double digit losses. The odds of steeper declines are lower still. Only 11 times out of 151 has there been a market tumble of 20% of more.
So, while intra-year double digit losses are common, the chances that it’ll turn into a negative year are much lower.
4. Zoom out far enough and market corrections look like small blips.
This chart shows one dollar (in 1870 US dollars) invested in a hypothetical US stock market index in 1871 would have grown to $31,255 by the end of January 2025 in real terms (inflation-adjusted).
5. Holding periods matter. The chart below shows the chances of making a positive return on the MSCI World Index when investing for 7 year or more is at or near 100%. In other words, long-term investing almost always pays off.
The three golden rules of investing
Reframing markets in this way can hopefully lead you to bypass your emotions to consider the current markets in a more rational one.
And it leads me to my three golden rules of investing, which are especially applicable in any market downturn:
- Stay invested.
- Buy more if you can.
- Be patient.
Staying invested means that you don’t try to time markets. Doing this invariably leads to poor choices and inferior returns. Don’t believe me? Well, research has repeatedly shown that retail investors earn far lower returns than indices. The reason? They try to time markets. Don’t make the same mistake.
Buying more if you can means taking advantage of corrections to add to your portfolio. Rebalancing a portfolio is one way to do this. Another way is opportunistically adding to stocks that you already own or ones that you’ve earmarked to buy at certain prices.
Finally, being patient suggests holding onto stocks for as long as you can to let compounding can its course.
Following these three rules can enable you to build a sizeable portfolio and face any market corrections like this one with equanimity rather than fear.
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In my article this week, I take a closer look at the $5.4 trillion intergenerational wealth transfer in Australia and suggest that while it may be good for those with the money and those inheriting it, it isn't so good for the country as a whole. I explain why that's the case, and offer some potential solutions.
James Gruber
Also in this week's edition...
As you might be able to tell from the endless spending promises from both sides of politics of late, a Federal election is set to be called at any moment. Shane Oliver outlines what the election will mean for investors.
Investment returns in super are a big focus – the media never fail to report on them. But UniSuper's Annika Bradley says that the chance of a comfortable retirement isn't just about investment returns, it's also about managing the risks along the way.
Meanwhile, most superannuation products offered to working-age Australians are now performance-tested, and there are calls to extend these tests to account-based pensions. Ron Bird isn't keen on the idea, for a host of reasons.
Tariffs are dominating the headlines and giving fright to fragile markets. But what does history tell us about the impact of tariffs on shareholder returns? VanEck's Anna Wu has the answers.
Amid a mini-market crash and a torrent of headlines, where are the best opportunities for investors? Fidelity International's Maroun Younes scours the globe and offers what he thinks are the next market winners.
Leigh Gant says there’s a peculiar irony in investing: the more aggressively you try to compress your timeline and chase that one massive windfall, the more likely you are to stumble. A better strategy is focus on minimising losses, rather than maximising gains, he believes.
Lastly in this week's whitepaper, VanEck does a deep-dive on quality investing and compares its performance and risk to other identifiable investing ‘factors’.
Curated by James Gruber and Leisa Bell
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