March 2025 Insights

The Long Game

In today’s environment of heightened market volatility, driven by concerns over inflated valuations in the US and rising geopolitical tensions, many investors fear we’ve reached a peak and that a bear market is imminent. As a result, they often choose to sit on the sidelines, waiting for the perfect moment to re-enter. During these uncertain times, it’s important for investors to remind themselves of the timeless principle: “time in the market beats timing the market.” Psychological barriers, especially our innate risk aversion, often prevent individuals from fully embracing this wisdom and investing consistently through market cycles. Yet history has repeatedly shown that markets tend to follow a natural long-term upward trajectory. The chart below highlights this trend, illustrating that even investments made at market peaks have generated strong returns over time.

Source: High Street via Bloomberg (31 January 2025)

Take, for example, an investor who entered the market at the peak of the dot-com bubble in March 2000. Despite enduring a 49% drawdown over the two years that followed, they still would have achieved an annualised return of 8% by staying invested until today. This highlights the power of long-term investing and the importance of remaining committed through market cycles. Further reinforcing this principle, from 2003 to the end of 2022, an investor who remained fully invested would have earned an annualised return of 10.4%. However, missing just the ten best days, seven of which occurred during bear markets, would have only generated 6% per year. This underscores the risks of market timing and the critical importance of staying invested through volatility. Since no investor has a crystal ball, attempting to predict market bottoms is a futile exercise where investors often find themselves missing out on the best days which leads to weaker long-term returns.

As active managers, our role is to navigate market volatility while staying true to our core investment philosophy, that long-term share price performance is driven by underlying company fundamentals. We encourage our investors to have long term views when investing and to look through the short-term cycles.