While the goal may be modest, it required the caveat that it was one that required an ‘attempt’ to achieve – in other words, it was not guaranteed. This will probably resonate with many advisers and investors as everyone knows what they should be doing during times of high market volatility and drawdowns, but it is not always simple to do. Inaction is seen as a vice and not a virtue, and people feel that doing nothing is not an option as they will be seen as complicit in the loss of capital.

Unfortunately, this goes against all the evidence that suggests:

1. Markets are very difficult, if not impossible, to time. So you should not be trying to do so – it is all about time in the market and not timing the market
2. Markets tend to go up over time, especially over longer time horizons. Therefore, stick to your long-term strategy when investing in risky assets. You should not be invested in equities if your investment horizon is in the short- to medium-term

As a student of markets, this is something that I studied across markets and over very long periods of time – more than 100 years. Although future outcomes can, and will, at some point be even worse than what we have seen previously, it is not useful to invest on this basis unless you have access to more wealth than you will ever need. For the majority of us, we may want to make our rand or dollar stretch as far as possible, that is obtain the best possible return within acceptable levels of risk. We therefore accept that although markets will go through periods of turmoil, we will be richly rewarded in the end.

The South African equity market may be down around 14% on a total return basis since its previous high, and this is painful for many investors with high equity exposure. However, it pales in comparison with other global markets that are down significantly more. The S&P 500 for example, is down more than 25% since 3 January 2022, which is causing much more angst among both local and global investors with a high allocation to US equities. We have no way of knowing whether this drawdown will ultimately become worse, or when it will end – not only hit the bottom of the cycle, but recover all losses. We can, however, look at other drawdowns historically to appreciate how markets perform after significant drawdowns.

The most recent drawdown before the current one, was during the COVID pandemic. The S&P 500 lost almost 34% in just over one month, from 19 February to 23 March. Five months later the S&P500 had fully recovered that loss, with a return of 51% to get up to its previous level. It then went on to deliver another 41% over the next 16 months to the start of the latest drawdown. This equates to a total return of 114% since the bottom of the COVID drawdown. Imagine suffering a 34% drawdown, moving into cash and then missing out on that subsequent return.

We therefore maintain that markets are notoriously volatile, so choose an appropriate strategy that matches the level of risk that you are comfortable with and then stay the course, no matter how emotional or painful that might be. Markets are very difficult to time but the volatility matters less over appropriately long time periods.