The Investor's Compass: Why Patience Beats Panic in Today's Market

If you've been following the markets lately, you might be feeling a familiar tug. AI stocks are soaring, the "Magnificent 7" tech giants dominate headlines, and it seems like everyone has an opinion about what you should be owning. Sound familiar?

It should. We've been here before.

In 1999, a prominent portfolio manager was told his firm had become "irrelevant" because they didn't own enough Cisco, Nokia, and Nortel. The dot-com era was in full swing, and anyone not riding the tech wave was considered out of touch. Fast-forward to March 2000, and many of those "irrelevant" strategies suddenly looked quite prescient.

Today's market feels remarkably similar. If you're not heavily weighted in AI and tech, you might feel like you're missing the boat. But here's what history teaches us: the most dangerous investment decisions are often made when everyone agrees on where the next windfall will come from.

The late Peter Bernstein, author of the seminal work "Against the Gods," once shared profound insight about investing: "I've become increasingly humble about it over time and comfortable with that... There's never a time when you can be sure that today's market is going to be a replay of a familiar past."

This humility isn't weakness—it's wisdom. And it leads to one of investing's most powerful concepts: diversification.

As Bernstein put it, "Diversification is an explicit recognition of ignorance... I view diversification not only as a survival strategy but as an aggressive strategy, because the next windfall might come from a surprising place."

Yes, diversification is out of fashion right now. When a handful of U.S. tech stocks are driving market returns, spreading your investments across sectors, geographies, and asset classes can feel like you're intentionally handicapping your portfolio. But remember: markets have a way of surprising us, and the next source of returns might emerge from the most unexpected corners.

Here's a statistic that might surprise you: Since 2000, investors surveyed at any given time have generally estimated a 10-20% chance of a market crash in the next six months. That's two decades of persistent pessimism—and yet, markets have continued their long-term upward trajectory.

Yale economist William Goetzmann has lived through four major crashes (1987, 2000, 2008, and 2020) and offers a reassuring perspective. His research examined instances since the 1880s where markets surged 100% over one to three years. The result? In less than 1% of cases did markets subsequently fall 50% or more. In fact, 26% of the time, they rose another 100%.

This doesn't mean crashes never happen—they do, and they're painful when they occur. Goetzmann himself watched his life savings drop 50% in 2008. But here's the crucial point: in every instance, he stayed invested and benefited from the inevitable recovery.

"If you wait five years after this event, you're going to be better off," he explains. "That's what I'm telling you."

Perhaps the greatest risk isn't market volatility—it's missing out on long-term growth because we're paralyzed by fear of short-term losses. When we're constantly bombarded by scary headlines and predictions of doom, it's natural to want to retreat to the safety of cash or bonds.

But consider this: while investors have been predicting crashes for the past 24 years with remarkable consistency, the S&P 500 has grown from around 1,100 in 2000 to over 5,800 today. That's more than a 400% return, despite multiple crashes, recessions, and crises along the way.

The key insight? Markets reward patience and punish panic. Those who stayed invested through the volatility captured these gains. Those who fled to the sidelines during scary periods often missed the recoveries entirely.

So what should you do in today's environment? Here are some time-tested principles:

Embrace Your Ignorance: None of us know what tomorrow's markets will bring. Build portfolios that can thrive in multiple scenarios rather than betting everything on a single outcome.

Focus on Consequences, Not Probabilities: As Bernstein noted, "You have to think about the consequences of what you're doing and establish that you can survive them if you're wrong." A 90% chance of success means nothing if the 10% failure scenario wipes you out.

Remember Your Time Horizon: If you're investing for retirement 20 years away, this month's headlines are noise. Stay focused on your long-term goals, not short-term market movements.

Diversify Thoughtfully: While tech stocks have dominated recent returns, other sectors and regions will have their day. Make sure you're positioned to benefit when they do.

The most successful investors aren't the ones who predict the future—they're the ones who prepare for uncertainty. In a world where AI podcasters confidently declare that investors "won't make any money" outside of tech and crypto, the contrarian in me perks up. These moments of absolute certainty often mark the times when diversification matters most.

Your portfolio should be built to weather storms and capture sunshine, regardless of where either originates. That's not playing it safe—that's playing it smart.

As always, we're here to help you navigate these complex decisions. If you'd like to discuss how these principles apply to your specific situation, please don't hesitate to reach out.

This document is provided as a general source of information and should not be considered personal, legal, accounting, tax or investment advice, or construed as an endorsement or recommendation of any entity or security discussed.All investments involve risk, including the potential loss of principal. Leveraged ETFs and other complex investment vehicles may not be suitable for all investors and should only be used with a full understanding of their risks. Asset class performance varies over time, and diversification does not ensure a profit or protect against a loss. Every effort has been made to ensure that the material contained in this document is accurate at the time of publication. Market conditions may change which may impact the information contained in this document. All charts and illustrations in this document are for illustrative purposes only. They are not intended to predict or project investment results. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Investors should consult their professional advisors prior to implementing any changes to their investment strategies. The opinions expressed in the communication are solely those of the author(s) and are not to be used or construed as investment advice or as an endorsement or recommendation of any entity or security discussed. Mutual funds and other securities are offered through De Thomas Wealth Management, a mutual fund dealer registered in each province in which it conducts business and a member of the Canadian Investment Regulatory Organization (CIRO).