If you had looked at the market on January 2 and again on June 30, you might have thought very little had transpired. And yet, beneath the surface, the markets served up another master class in the emotional nature of investing.

US large-cap stocks hit an all-time high in February, only to drop nearly 22% intraday by early April. The spark? A sudden tariff escalation announced by President Trump. Panic arrived quickly—as it always does—but, like most panics, it didn’t stay long. Once the policy was paused, markets rebounded with equal speed, reminding us again that reacting to headlines is rarely a sound investment strategy.

Meanwhile, the fundamentals didn’t change. The economy remained solid, inflation showed signs of moderation, and well-diversified portfolios, including international holdings, delivered respectable results. Our takeaway? Volatility is not the enemy; abandoning a sound plan is.

As I discussed with many of you in the days following the April 2 tariff announcement, this particular episode—though abrupt and unsettling—was hardly unique in the grand sweep of market history. While the flavor of each panic may differ, the emotional arc remains the same: fear rises, headlines scream, and investors begin to doubt what they knew just weeks earlier.

We live in a world where crises compete for our attention. In today’s nonstop news cycle, it’s easy to forget just how many moments of market turmoil we’ve lived through—and just how temporary they have all proven to be. It’s not that risks weren’t real; they were. However, each of these past episodes presented us with a choice: to stick to our long-term plan or to abandon it in pursuit of temporary safety, which often comes at a steep long-term cost.

In just the past 25 years, markets have delivered seven major panic attacks. Each felt unique and terrifying in the moment. But they all had the same outcome: the crisis passed, businesses endured, and equities resumed their enduring advance.

Let’s revisit each briefly:

• Panic #1: The Dot-Com Bubble (2000–2002)

A long and productive bull market throughout the 1980s and 1990s—fueled by innovation, deregulation, and disinflation—ultimately gave way to speculation. Investors rushed into internet-related companies, many of which had little more than a website and a press release. US large-cap stocks peaked in March 2000 and fell nearly 50% over the next two and a half years.

The burst of the tech bubble was only part of the story. The September 11 attacks in 2001 shocked the nation, and a series of corporate scandals—Enron, WorldCom, Tyco—shook confidence in financial reporting. The result was a rare moment in modern investing when people stopped believing the numbers. But those who stuck with diversified portfolios saw markets recover, setting the stage for another long expansion.

• Panic #2: The Global Financial Crisis (2007–2009)

This panic was different in kind, not just degree. Years of overleveraged mortgage lending and opaque financial engineering came to a head in 2008. When Lehman Brothers failed, the entire credit system seized up. Banks didn’t trust each other. Money market funds broke the buck. Even seasoned investors were unsure what might come next.

The stock market declined more than 56% over 17 months, and the recession that followed was the worst since the Great Depression. But here again, the American economy proved resilient. Extraordinary measures by the Federal Reserve and Congress helped stabilize the system, and over the years that followed, patient investors were rewarded with one of the strongest bull markets in history.

• Panic #3: The European Debt Crisis (2011)

With the scars of the financial crisis still fresh, fears emerged over whether heavily indebted European nations like Greece, Italy, and Portugal might default—and whether the euro itself could survive. Meanwhile, back home, political brinksmanship over the U.S. debt ceiling led to the first-ever downgrade of U.S. Treasury debt by a major rating agency.

For several months, the markets churned. US large-cap stocks dropped nearly 20%, and investors once again faced unsettling headlines about systemic risk. However, the crisis once again passed. The euro endured. The U.S. honored its obligations. And equity markets resumed their climb.

• Panic #4: The Christmas Eve Massacre (2018)

This episode might be the most forgotten, but it felt very real in the moment. Amid escalating trade tensions with China, repeated rate hikes from the Federal Reserve, and a prolonged government shutdown, markets grew increasingly nervous.

By Christmas Eve, fear was peaking. US large-cap stocks had fallen nearly 20% in just three months. The President publicly criticized the Fed chair. Investors feared the economy was headed for a recession. But almost as quickly as it had begun, the panic lifted. Markets rebounded strongly in early 2019, and fears of imminent collapse faded into memory.

• Panic #5: COVID-19 Pandemic (2020)

This was the fastest bear market in history. In just 33 days, US large-cap stocks lost a third of their value as the world shut down to confront an unfamiliar virus. Restaurants closed, flights were canceled, schools emptied, and offices went remote.

And yet, just one month after the market bottomed, it had already regained a meaningful portion of its losses. By August, stock indices were hitting new highs. Unprecedented monetary and fiscal support helped. But what mattered most was something simpler: businesses adapted, innovation accelerated, and markets—as they always do—looked ahead.

• Panic #6: Inflation & Fed Tightening (2022)

After years of calm prices, inflation roared back in 2022. A combination of pandemic stimulus, disrupted supply chains, and energy price spikes pushed inflation above 9%—a level not seen in nearly four decades. The Fed, initially slow to respond, raised interest rates at a historic pace.

The impact was swift and painful. Both stocks and bonds declined sharply. A traditional 60/40 portfolio had its worst year since 1937. But in time, inflation began to moderate, markets found their footing, and those who stayed invested saw conditions begin to improve.

• Panic #7: The Tariff Typhoon (2025)

This most recent episode may still be fresh in your memory. The April 2 announcement of sweeping tariffs from President Trump caught markets off guard, triggering a swift and sharp decline. At one point, US large-cap stocks were down more than 21% intraday.

But just days later, after a delay in implementation was announced, the market bounced back. It’s a familiar pattern. Policy surprises, political headlines, and market corrections come and go. What endures are the earnings of resilient companies and the power of long-term compounding.

Periods like the one we’re in now are characterized by a wide range of potential outcomes, unreliable or incomplete information, and a heightened emotional atmosphere. These dynamics distort judgment, often pushing people to one of two extremes: freezing in indecision or overreacting in an effort to regain control.

Even the most experienced and well-informed experts cannot reliably forecast how or when today’s uncertainty will resolve. The future is, by its nature, unknowable and influenced by countless factors beyond any individual’s control.

That’s why, in moments like these, long-term investors face a fundamental choice: chase the illusion of clarity or lean on the structure and discipline that have guided successful investors through past crises. We choose the latter.

We ground our approach in a set of enduring principles:

1. Even in calmer times, markets and economic trends cannot be consistently forecast or timed.
2. No one—not experts, strategists, or headlines—knows exactly how or when today’s uncertainties will be resolved.
3. Your portfolio is built on a long-term investment plan tailored to your unique goals, not on short-term speculation.
4. Your investment and withdrawal strategy is designed for resilience and is based on tests of similar strategies through past market cycles.

In light of these realities, the wisest course of action is to remain grounded in your plan. The strength of our strategy lies not in reacting to every headline, but in maintaining clarity and composure through both calm and turbulent times.

The challenges of this year have once again reaffirmed the core wealth management principles we outlined in February’s year-end letter. These principles haven’t changed. They continue to serve clients well across every market cycle.

We’ve long emphasized the importance of broad diversification, steering clear of speculative bets and the temptation to chase investment fads. At times—especially last year—this discipline may have felt like driving in the slow lane while faster-moving trends surged ahead. But recent volatility has reminded us that staying the course is often what ultimately keeps investors safely on track.

In that same spirit, we encouraged portfolio rebalancing earlier this year. This simple yet powerful discipline—selling what’s become overweight and buying what’s become underweight—often runs counter to our instincts. It can feel uncomfortable to trim recent winners and add to laggards. Yet this very act of “buying low and selling high” is what positions long-term investors for resilience when markets turn volatile.

We also cautioned that fully valued markets are more susceptible to shocks. Persistent inflation and unpredictable trade policy were two risks we identified as being underappreciated earlier in the year. Both have since materialized—reinforcing the value of maintaining cautious optimism even in seemingly strong markets.

Finally, it’s essential to recognize that volatility is not a deviation from the norm—it’s an expected part of stock investing. Historically, markets experience at least one meaningful correction per year, averaging around 15%, and a deeper downturn about once every five years. These are not market malfunctions—they are the price of admission for the long-term growth stocks have historically delivered. Investors who internalize this truth often find that patience, not panic, is their most valuable ally.

“Speculation is most dangerous when it looks easiest.”

—Warren E. Buffett

The markets, like the seasons, follow a familiar rhythm. Euphoria breeds excess, excess leads to reckoning, and from that reckoning emerges opportunity—though few recognize it at the time. Over the years, I have spent more ink cautioning investors about the perils of bear markets rather than celebrating bull markets because discipline is tested in tough times. However, as evidenced by today’s somewhat stretched valuations, let’s talk about the other great pitfall: the fear of missing out (FOMO).

There are two moments that shake investors to their core. The first is when a bear market reaches its final, gut-wrenching phase—when despair is so thick that even sensible people consider throwing in the towel. At that moment, the intrinsic value of attractive companies is quietly rising in relation to their falling stock prices. And yet, the temptation is to believe: This time is different. This is the end.

The second—and possibly more dangerous—moment is when markets soar, optimism is boundless, and prices defy gravity. Suddenly, trees are expected to grow to the sky, and investors forget that every great technological breakthrough, from the railroad to the internet, has followed the same trajectory: from miracle to commodity. And yet, the chorus sings: This time is different. This is a new era.

During such times, rational investors face an irrational urge to abandon a carefully constructed, broadly diversified portfolio and chase what has doubled or tripled in a year. It feels safe—after all, the crowd is doing it—but history has shown that few strategies are more reliable at destroying wealth than performance-chasing.

I have always maintained that while prices fluctuate, true value endures. I remain optimistic about the long-term prospects of our global economy. Innovation drives progress, businesses expand, and hardworking people continue to build the future. The secret isn’t to chase last year’s hottest stock; it’s to acquire a well-balanced collection of attractive businesses—whether they're large or small, from various industries and corners of the world. A diversified portfolio, maintained in proper proportions and adjusted when needed, is about as close as you can get to a reliable recipe for long-term success.

Too often, investors stray from their disciplined allocations, piling into stocks simply because their prices have been on a tear. This approach prioritizes price momentum over intrinsic value. A stock that’s risen sharply might not be a bargain if its price no longer reflects its inherent worth. While chasing rising prices might boost short-term returns, it also increases the risk of holding overvalued companies, particularly if revenues, cash flows, or earnings falter.

“The investor of today does not profit from yesterday's growth.”

—Warren E. Buffett

Consider U.S. large-cap tech stocks as an example. These companies have enjoyed an impressive 15-year run. However, history shows that overconcentration in any asset class—especially one with lofty valuations—often leads to below-average returns over the next decade. Chasing yesterday’s winners is effectively betting that past trends will continue uninterrupted. Often, investors end up paying a premium for what has already been realized.

Howard Marks of Oaktree Management highlighted a J.P. Morgan Asset Management graph that illustrates this point. The graph, covering monthly data from 1988 through late 2014, shows the forward P/E ratio on the S&P 500 at the time and the annualized return over the subsequent ten years. This data reveals some key insights:

• There is a strong relationship between starting valuations and subsequent ten-year returns. Higher starting valuations consistently lead to lower returns and vice versa.
• Today’s P/E ratio is firmly in the top decile of observations.
• During that 27-year period, when the S&P 500 was bought at P/E ratios similar to today’s multiple of 22, subsequent ten-year returns ranged from +2% to -2%.

In November, several leading banks projected ten-year returns for the S&P 500 in the low- to mid-single digits. This relationship between price and returns explains their outlook. The return on an investment is significantly influenced by the price paid for it. Therefore, investors should not ignore today’s market valuation when making decisions.

As we reflect on the solid returns of 2023 and 2024, it’s easy to think that a lower expected return for stocks might not be so bad. That’s certainly true if the market were to plateau for the next decade while earnings grow and valuations come back to earth. But before you get too comfortable with that view, consider an alternative: a sharp correction, where market multiples compress rapidly in just a year or two—something akin to the market declines of 1973-74 or 2000-02. This wouldn’t be a “benign” scenario.

Let’s revisit some key lessons from recent years:

• 2022: Inflation surged to 9%, prompting the Federal Reserve to raise interest rates sharply. The outcome? It was a devastating year for the traditional 60/40 portfolio, which posted its worst performance since 1937.
• Tech stocks in 2022: These fell by 36%, a sharp contrast to the broader market’s 25% drop.
• 2020: A global pandemic triggered a near-total shutdown of the economy, sending the market down by 34% in just 33 days.

The big takeaway? Markets rise, and markets fall, often without warning. As investors, we don’t need to predict every twist and turn; instead, we prepare for the inevitable ups and downs that come with the territory.

There’s an old saying: The stock market is designed to transfer money from the impatient to the patient. And if there’s one discipline that ensures you stay on the right side of that transfer, it’s rebalancing.

Rebalancing isn’t exciting. It won’t make headlines, and nobody brags about selling a high-flyer to buy bonds or an undervalued stock at a cocktail party. But make no mistake—it’s an effective tool that helps investors keep emotions in check and stay the course. By systematically trimming what’s soared and reinvesting in bonds or underweighted stock positions, you keep your emotions in check and resist the temptation to chase performance.

Of course, rebalancing isn’t a magic trick that guarantees success overnight. Instead, it’s the final step in a series of rational decisions made when you set up your investment plan. Those decisions were:

1. Determine your risk profile. Understand how you feel about and have reacted to price volatility. If you don’t know how you will respond in the future, any portfolio mix will work—but probably not the one you want.
2. Build a portfolio that aligns with your risk profile. Assemble a mix of stock and bond assets that match your risk profile.
3. Commit to the plan. Stick with your predetermined asset allocations throughout your investing journey (unless your goals change). Don’t let fads, crowds, or market manias steer you off course.
4. Be a long-term investor. Attractive businesses create value over years, not weeks. To avoid chasing performance, own a broadly diversified and appropriately weighted portfolio of attractive businesses and high-quality fixed income.
5. Accept that downturns are part of the deal. Build and maintain your bond positions during bull markets so you can rely on them during the occasional stock market storm. This is the price of earning long-term equity returns.
6. Tune out the noise. Media headlines and marketplace chatter will always try to make you act. Your job is to stick to your plan and let your investments do the work.
7. Rebalance when necessary. Do it not when it feels comfortable but when your disciplined approach calls for it.

Rebalancing often feels counterintuitive. Selling what’s been performing well and buying what appears to be lagging isn’t the natural impulse for most, but that’s exactly why it works.

It’s hard to escape the noise these days—constant economic reports, market fluctuations, and political developments. We recently saw the S&P 500 drop over 6% in early August, with the CBOE VIX Index spiking to levels unseen since COVID. While unsettling, such volatility is not a reliable predictor of poor returns; historically, periods of high volatility often precede growth. Still, understanding this and experiencing it are two different things.

Success in investing—and in life—requires resilience. Nassim Taleb’s idea of being “antifragile”—thriving in adversity—is something to embrace. A solid plan feels reassuring in stable times, but it’s during downturns that the real test comes. Emotional intelligence, or EQ, counts just as much as knowing the numbers. By staying focused on your plan and tuning out the noise of temporary disruptions, you’re better positioned to see beyond the daily headlines and stay on track.

Before diving into the specifics of our approach, let’s address a constant that can often lead us astray: human nature. Markets may be uncertain, but they’re not our greatest challenge—our instincts are. When markets swing, the urge to sell is strong, especially when headlines turn negative. However, panic selling—unloading quality assets at low prices—is one of the quickest ways to miss out on long-term gains.

Consider this:

• In most areas of life, a lower price signals a bargain, but in investing, falling prices are often seen as a sign of rising risk.
• Research shows that we feel the pain of losses twice as strongly as the pleasure of gains, leading us to make emotional decisions that often don’t serve us well in the long run.

Recognizing these natural impulses doesn’t guarantee we’ll overcome them. Doing that takes discipline, patience, and the understanding that “this time” usually isn’t different. True investment success comes from working with these patterns, not against them.

Knowing our natural tendencies, how do we build a resilient plan? Here are seven pillars to guide us:

1. Align with Long-Term Goals: While maximizing returns is important, your portfolio should align with your family’s broader financial objectives. It should advance steadily, incorporating strategies like dollar-cost averaging, dividend reinvestment, and rebalancing.
2. Trust the Plan Through Down Markets: Market declines are temporary. History shows that markets recover, and those who stay the course are rewarded over time. Believing in this and staying the course is crucial.
3. Harness the Power of Compounding: Compounding is a quiet but powerful force in portfolio growth. The earlier we start, the more profound the effect. Consider two investors, one starting at 30 and the other at 40, both investing $10,000 annually. Assuming a 7% return, the early investor accumulates significantly more by age 65, underscoring the exponential impact of compounding.
4. Rely on Equities for Income Growth: Equities don’t just build wealth; they also grow income. As businesses grow their earnings, they often raise dividends, which help protect against inflation. Since 1960, dividends on large U.S. stocks have compounded at nearly 6%, preserving purchasing power over time.
5. Focus on Total Return: Dividends and interest are only part of the picture. Total return—capital gains plus income—is what ultimately drives wealth accumulation. Companies that reinvest in their business or buy back shares can increase their stock price, further building value.
6. Minimize Taxes: Selling assets to avoid short-term volatility can lead to hefty tax bills. Short-term “paper losses” usually recover in a well-diversified portfolio, but you typically cannot recover the tax you paid on gains.
7. Review Your Asset Allocation: With market valuations historically high, make sure your asset allocation aligns with your risk tolerance. If you’re overweight in stocks, rebalancing into bonds may be timely and help you avoid selling stocks during a market downturn.

When markets are climbing, it’s easy to feel confident. But the real test—the one that separates speculators from investors—comes during downturns. Historically, large U.S. stocks see annual declines of around 15%, with steeper drops of 30% roughly every five years, and even a few major declines of 50% in the past 50 years. Yet over the long term, balanced portfolios have returned 6–10%, rewarding those who stick to their plan.

Each share you own represents a real business with employees, customers, and products. A downturn is simply a sale on these ownership stakes. Long-term investors see these periods as chances to acquire more of these businesses at a discount, confident that prices will eventually recover.

So, next time the market takes a dip, look around. Notice the steady hum of everyday life—the restaurants serving customers, the shops bustling with activity, the hotels with people still checking in. These reminders underscore that the world moves forward and that the companies we invest in continue to adapt and create value. In the long run, it’s those who stand firm and look for opportunity, not those who retreat, who come out ahead.