Episode 104 - Stay Ahead of the Curve: When Markets Move, Leaders Adapt *Resource Edition

So much is happening in the markets right now. Volatility, uncertainty, and shifting investor sentiment are the new normal. For financial professionals, staying ahead isn't optional—it's essential. And that's exactly what staying ahead of the curve means in moments like these.

Advisors need more than information; they need to be ready to react and respond with clarity, confidence, and understanding.

That's why this month we're spotlighting powerful resources in place of our regular Cannon Curve podcast: a webinar with Subject Matter Expert Duane Lee, plus four essential articles. 

As we head into June and approach the midyear point, there's no better time to equip yourself with the insights needed to maximize the rest of the year. This isn't just another market update; it's a tactical toolbox built for today's challenges. Whether you're gearing up for high-stakes client conversations, preparing for midyear reviews, or refining your strategy for the second half, these resources deliver timely insights, data-backed context, and practical frameworks to help you lead with clarity when it matters most.

Market downturns are inevitable. Being unprepared doesn't have to be. Join us and turn market noise into meaningful opportunity—and stay ahead of the curve when it counts most.

Resources:

The New Face of Wealth: The Rise of the Female Investor — McKinsey & Company

Here's What Separates the Best Wealth Advisors from the Rest — Allison Bell, ThinkAdvisor

Consumer Sentiment Hits Historic Low as Inflation Fears Hit 44-Year High — Hyunsoo Rim, Sherwood

Weatherproof Your Retirement: Strengthening Risk Capacity for Lasting Security — David Conti, Kiplinger

Transcript 

 Hello everyone and welcome to a special presentation designed to address current market conditions. Now we may wanna call it the beginning of a bear market. We may wanna call it the tariff market, but whatever you want to call it, it's a survival guide. To help us get our clients through a market plunge unscathed.

Now, I'm happy to share with you any of the slides that we use in the presentation, and you can use them yourself with your clients or your staff, however you see fit. But I wanna start with a saying. I came across some years back and I have it posted in my office. So let's read it together. From time to time, the markets can go stark raving mad as occurred on the upside in the 1990s, or the downside during the Great Depression, and again during the Great Recession.

And your primary defense against being swept up in the madness of such periods is a command of the history of the financial markets. The resulting ability to say, I've been here before and I know how the story ends, that's a great position to be in. Being an optimist on the American economy or American in general is a superpower.

And I would have to say that's even more true during weeks like these. Nasdaq briefly entered bear market territory over a 20% decline, and then it bounced up a little bit, but the headlines are clearly flashing red and many portfolios are shrinking, and that causes panic to set in. Another quote that I like is Napoleon's definition, A military genius.

The man who can do the average thing when everyone else around him is losing his mind. Well, I would argue it's the same with investing in the thick of it. Keeping a cool head almost feels impossible, and the best days, almost always, right after the worst, which tests our emotions. Our intestinal fortitude even further.

So this little guide will be your antidote to the chaos. You can use it with your staff, you can use it with your clients, or just for yourself. Let's break it down with data strategy and a steady hand. So today we're gonna try to cover, and you may know many of these things already, but it never hurts to reinforce them.

What is a bear market actually? What does history tell us about bear markets? What is the psychological effect of downturns? How do we keep our clients invested for their own good? How do we find new opportunities in the midst of all this chaos, if you would, and then we'll try to summarize what are the key takeaways for investors?

One of the best books I've read in the last year or so is by one of my mentors, Charles Ellis, and the book was called Figuring It Out, 60 Years of Answering Investors' Questions based on his wealth of information. Not a bad book to pick up and keeping your professional library. So exactly what is a bear market.

We probably all have our own. Definition, but I think there is a one that we can all agree on is defined as a drop of 20% or more from recent highs. Whatever index you wanna measure, but it's far more than just a number. It's really a psychological turning point. Something happens in our brains when the market is off by 20% or more.

I've seen it before. You've seen it before. Since 1945, the s and p has experienced 15 bear markets with an average decline of 32%, and the time it took to get to the bottom was 11 months. Now these are averages. Sometimes it's shorter and sometimes it's a little longer, but the time to recover is 1.7 years.

So if 11 months is the downward trend, then eight months is the time to recover because it has to recover based on where it started at at the beginning.

And if you have a longer term lens, if you have a longer term telescope, if you would, things look a lot more reasonable. We've gone through some hellish times over the years. Including the Great Depression, which was certainly a significant downturn. But if you look back, all these different, sorry, all these different things that have happened and the Trump tariffs are simply another thing that's happened, and it's not likely to permanently depress the market.

It's likely to have a relatively short rebound period, but just look at all the other issues that have happened. Over that timeframe in the history of bulls and bears, in my opinion, provides a lot of stability to my mind. Yes, the average bear market

lasts 11.1 months with an average decline of 31.7, let's call it 32. So the average decline is 32%,

but the average bull market that follows it a little bit different story. First, it lasts on average 4.3 years with a total return of 150%. So the average return. Is one 50.

Well, that's a pretty good trade off. You're down 32 for a lot, 11 months, and then you're up 150%. You'd almost wish for a bear market more often down 32 and back one 50. Repeat, repeat, repeat. I know that's not what we actually want to have happen, but there's some logic to that. We've also been right where we are before, many of us may not remember this, but there was a tariff and China slowdown in Trump 1.0 in his first administration.

Well, back then we were down about 4.4%. Then in a very short period of time, the following year, 2019, we were up 31. Well, we've got a more dramatic downturn and I would suggest it very well may be a more dramatic upturn. That's usually what happens. The bigger the down, the greater the up, and I don't expect this to be violating history.

So we had a few days, two, to be precise, when the SP 500 lost 10 and a half percent of its value in a mere two days, that's a lot, and that's quick, but that doesn't mean it's gonna stay down. So it is down a lot more than it was during Trump 1.0. I'm just gonna suggest it'll be up more than it was in Trump.

1.0, which by the way was 31% from the bottom.

Another thing to look at, and I'm a big believer that a picture tells a thousand words, and I hope you like using pictures too. Tell the story. Well, when you look at market declines of at least 15%. That's where we're starting. Market declines of at least 15% going all the way back to 1932. Well, the subsequent 12 month return averaged 52%, so the average decline of at least 15% was followed by an increase of 52 a year later.

Also, it's your time perspective that really is important. If you look at that dark line graph, that's the short term view. That's monthly returns. Monthly returns. But if you look at the long term view, it's much more attractive in that you eliminate the extremes and what you get is. Fairly positive upward slope without the gyrations of the market on a month to month basis.

So try to keep your clients focused on the long term, although I realize that's not always easy, but with the long term view, it tripled over time. Excuse me, these numbers vary, but that's not what we wanna focus on. The pattern is familiar. The numbers aren't always exactly the same numbers. No, but the pattern is familiar.

What's the pattern? Markets fall. Investors panic and recovery follows. If we're going to be in an average bear market, which by the way, I'm not necessarily suggesting we are, but let's take the worst case scenario. We'll reach the bottom early next year and we won't hit a new high until the end of 2026.

That's not that far off. We're in the fourth month of 2025 already. Does that sound daunting to you? Well, hopefully forward, we're done. It won't if we have the right mindset and you're a net buyer of stocks. This is our chance to scoop up great companies that are on sale. There's a great investor, Shelby Davis, who is world renowned for the ability to have long-term sustained performance.

He made a comment that I've always remembered. I'm big on quotes, aren't I? Well, you make the most of your money in a bear market. You just don't realize it at the time you make most of your money in a bear market. The key here is understanding that bear markets are normal. They're not some wild exception, so the real question isn't, are they gonna happen again?

Oh, I have an easy answer to that. Yes. The real question is how you'll respond, have your customers respond.

I thought a little historical perspective, facts and figures might be interesting to some of you. 33% of market downturns recover within one month. 50% of market downturns recover within two months. 80% of market downturns that do occur recover within one year. A whopping 95% of the time,

those big once in a lifetime drops return to break even in three to four years with the actual average being 43.7 months. But those are those once or twice in a lifetime drops, which I do not think we're in right now. So officially, what is the correction? Well, a correction is a loss of 10 to 20%. Less than 10% is just market noise, and that happens every 2.9 years with an average loss of 13.9%, and there have been 25 occurrences since the end of world Wari.

Every three years, we lose 14%. We recovered now the bear market different story, the loss of more than 20% every 7.2 years with the average loss being nearly 33% with 10 occurrences since the end of World War ii. Looking at this collectively

since 1871. That's a long term time horizon. It takes the time it takes for the market to recover, and that means top to trough to top again is mere 7.9 months, not even eight months.

So what else does history tell us? Well, here's the historical frequency of drawdowns since 1928. Every four years, only percent or more once a decade, 30% or more every few decades of 40% loss and twice in a century of 50% or greater loss. Now, once a year, well, that's a 10% loss every two years. That's a 15% loss.

So these are predictable, they're expected. Why do we get so agitated when something that we expect to happen actually does? It's sort of interesting to me.

What else does history tells us? Well, when we're in the midst of it, most bear markets feel endless in the moment. In hindsight, they were temporary setbacks on a long upward trend. And yes, there have been outliers. We don't wanna to minimize those, but there have been outliers, the 73 74 bear market, when inflation was raging dur after the Vietnam War, the.com bubble in 2000, the 2008 rate recession.

Each of those. Took slightly over four years to recover. But I would say those events were also rare. They weren't your normal occurrence. They were a little more extreme. History continues to tell the story in 12 outta the last 15 bear markets investors broke even in under three years, under three years.

More importantly, rebounds tend to begin, and this really is the more important piece. Rebounds tend to begin before things feel safe. If you wait until everything looks rosy, you'll have missed almost all of the rebound again. Peter Lynch, every economic recovery since World War ii. Has been preceded by a stock market rally, and these rallies often start when conditions are grim.

We can't wait until everything looks rosy trying to wait for perfect conditions. And by the way, perfect conditions almost never present themselves. But trying to wait for perfect conditions means missing the earlier part of the gains. And one other thing about the early part of those gains. Those tend to be the biggest part of the gains.

So stay invested, even when it's hard, is usually the smarter move.

One of the great perversities of the market, great ironies of the market, is that people don't like. To have stocks go on sale. People hate to buy stocks when they go on sale. Anything else, they'd be running to the store. They'd be standing in line at midnight in the cold weather, waiting for the store to open tomorrow morning.

But stocks, it's just the opposite. But think of it this way, volatility is the price of admission for getting better returns. And the author Morgan Housel, who wrote a book called Same As Ever, things are not as different as you might think they are. Calls it a feature. It's a feature of the market, a bug or a defect.

Think of it as a feature. When prices fall, there's always something to worry about. Global pandemics, recessions, trade wars. Inflation, you name it. Right now, I think it's probably the trade wars. The fear of a potential recession will make headlines, at least for the foreseeable future. Critically, those perma bears we start to read about will claim that the world order has changed.

Stocks may never recover, but there's a catch to that. They always say that in my 48 year career, I've heard that a dozen times from what I call the Perma Bears. Again, Peter Lynch, in his book Beating the Street, he says, this one is different. That's the doomsdayers litany. And in fact, every recession cause is a bit different, but not the pattern.

And that doesn't mean it's going to ruin us. So there's a little bit of truth to this time. It's different, but that's referring to the cause of the recession, not the pattern we're going to follow.

On average recessions last 11 months, expansions. Last six years. That's quite a good trade off. So what's the takeaway from that? Why spend all of your time preparing for recessions

when they're brief, unpredictable. That's the key. And often already priced into the market, but they're unpredictable. No one should try to predict the next recession. Or the depth of it or how long it's gonna last. Human beings power of prediction is not very good. Even if you could have and you can't.

But even if you could have perfect knowledge of the economy, you wouldn't be able to consistently time your trades. The market trends to rebound long before the economic news is looking good. Despite knowing this, and I think you and I can admit we do know this, investors still try to outsmart the cycle, but as history shows, market timing is a weapon of alpha disruption, I really believe it is the better strategy.

Stay in the game that time and patience. Do the heavy lifting time and patience, do the heavy lifting.

One of the great ironies is when stocks go on sale is the time we should be buying them, not dumping them. The s and p 500 has returned 10% annually, including dividends for nearly a century. Some years were certainly worse, and some years were certainly better. But that's the hard part of long-term investing.

Stay optimistic in a world that constantly tells you not to be. Warren Buffet says, and so did Sir John Templeton Betting against the US economy is a fool's game. Bear markets are part of the cycle. You can't have a cycle if it's all one direction. And history shows that the patient investors are the ones that are rewarded.

The psychology of downturns. How does it affect your mind, your client's mind? It's not the math, it's the mind games that hurt us. Markets fall all the time. A bear market. Well, that's when it starts to feel personal. Your portfolio shrinks. The headlines get darker. Every bounce feels fleeting. It's just what they call the dead cat bounce.

You don't know how bad it's gonna get. You don't know or how long it's gonna last. You don't know. You can't know. The real pain isn't the drop. No, it really isn't. You know what the real pain is? It's the uncertainty. That's what gets into our head the uncertainty. Humans don't like uncertainty. They like just the opposite.

They let's be able to pre predict to know certainly what's gonna happen. That's just not a realistic expectation. Here's why humans often extrapolate. They take whatever's happening in the last three or four months and extrapolate it so that 20% drop feels like it's heading to a 50% drop. They extrapolate, they feel the need to act, even if doing nothing is the smarter choice they need to do something.

Our brains crave patterns, but markets rarely tell. A clear story. So we're asking for something that isn't there. So what we do is we start to make up patterns in our head. We confuse volatility with a permanent loss of capital. Are the markets volatile? Absolutely. Is it likely to experience a permanent loss of capital?

Not very likely. So this is often when people, I would call good investors. Make bad decisions by selling too soon. Boarding, cash and chasing safety after the market has already plunged. Now, my grandmother used to have a phrase for that. She used to say, no point closing the barn door after the horses have already escaped.

So chasing safety after the market has already plunged.

We talk about the psychological effects of a downturn, you ought sort of have this in your back pocket when you're talking to someone and see what stage they're in. It starts with disbelief. This rally will fail like all the others, but then if it continues, hope or recovery is possible. We become more optimistic.

Looks like the rally's real, then we not to have belief time to get fully invested. Well, gosh, three quarters of the gain has all reoccurred. Then we're thrilled. I will buy more on margin. I gotta tell deliberate to buy. Then we get to euphoria. I'm a genius. We're all gonna be rich. My dad used to say, don't con.

Brains with a bull market. But then eventually we get to the upper end of that cycle. We get to complacency. We just need to cool off the next rally. Then it turns into anxiety. What am I gonna do if I get a margin call? The dip is taking longer than expected. Eventually, denial will occur. My investments are with great companies.

They'll come back. Panic stuff happens. Everyone is selling. I need to get out, and we get to anger. Who shorted the market? Why did the government allow this to happen? Blame somebody else and eventually depression. My retirement money is lost. How can we pay for all this new stuff? I'm an idiot. And then what happens?

Right back, the disbelief. Up to hope this is a recurring cycle and see what always happens. What always happens is right here we peaked out here. There's a trough, but then we get back to break even right there. But then the rest of it fills in this. The rest of that is prosperity rising above the previous peak.

Most underperformance, if you look back in time, you'll see this in your own portfolios, your client's portfolios. Most underperformance doesn't come from picking the wrong stocks. It comes from reacting poorly when fear takes over, when the emotional fog rolls in. Your best defense isn't trying to time the market, having a plan and sticking to it.

If you have a plan before the market drops, and you know what you're gonna do when that happens, and you can stick with it, but to have a plan not to go in blindly. So how do we stay invested? Discipline, not prediction is your superpower. Humans are not good at predicting, but discipline I think we can add.

That's not an easy thing, but it's easier to be disciplined to make accurate predictions, and you don't need the time. The bottom. That's not what's critical. You can get in right before the bottom or right after you. That's not an exact date you need to call, but you do need a system you can stick to in the worst moments.

Another Peter Lynch quote, I like this one. The most important organ in investing is not the brain. It's the stomach. Do you have the intestinal fortitude to work your plan? Volatility isn't the reason to abandon ship. It's the reason to lean into your process. Will remove your guesswork. What I've been successful at doing is, well, I call it documenting.

You might call it journaling, so whichever term you want to use, but by documenting why and when I do a trade, I start to spot patterns and it prevents knee jerk reaction. Has anything fundamentally changed as to why you bought the stock? No. Then why are you selling it? So put your strategy a automatic pilot as best as you can.

Can you define when you can buy and when you can sell in that strategy? So in short, ask yourself this question. What did I plan to do in this situation? I already should have an answer because over the years. I found that having a simple rule-based system helps me stay grounded. Here are four rules to protect your client's portfolio.

Invest any cash, accumulations, monthly rain, or shine. Don't add to losers, sorry. Don't add losers, but don't sell your winners. Stay the course. Be patient. Have a time horizon of at least five years for the equity portion of the portfolio. Each and every month review the fundamentals and valuations to decide what to buy, but also when and how much should already be preset parameters.

The what to buy will change each month, but you should know how much and when and follow a strict. Maximum percentage for any one security. Now, that will vary by account, but the point is you have a plan for that account.

Why do I think this works? Well, it puts a cap how much a client can put into any single stock. It also forces clients to invest even when panic is in the air. It spreads out their risk over time. It avoids that all in trap. The theory is buy low, sell high. Well, buying low includes buying during a market decline, and it keeps them invested through thick and thin is really the only way to invest.

It's a system that works for me and one that you could adapt to make your own. Having your personal playbook can actually be the difference between reaction and resilience. A structured approach can help avoid emotional over action, over reaction, sorry. It doesn't matter what the exact number you use, it matters that you have a plan.

You stick to it. Define a plan and stick to it. In investing consistency wins the game, not market timing. Consistency. Wins the game.

Before making any changes to a portfolio, you or your clients, write it down. Why do you invest? What is your time horizon? What is your investment philosophy? Why are you bullish about this investment? Is there something that would break your thesis? Well, if that happens, then sell that security, but not all of your equities.

Success unfortunately comes from homework and preparation. These are not questions you want to answer after the fact. Answer your questions for any investments as Adam Smith, the author of the Money Game, said, if you don't know who you are, the stock market is an expensive place to find out. Keeping a simple investment journal or some kind of a notes app can help you recognize your own patterns and help you curb impulsive trades and help you stick to those principles.

Consistency wins the game.

I also tend to sleep on it if I have a day where I feel like. I must act after everything's read, everything's down. I pause. If your decision can't wait 24 hours, it's probably driven by fear and greed, not the fundamentals. Again, the required quote from Peter Lynch. The trick is not to trust your gut feeling, but to discipline yourself to ignore your gut feelings.

Your gut feelings are often based on fear or greed,

so how do we find the opportunities you might ask every bear market, regardless of its severity, plants, the seeds of the next bull market. Here's the question you have to ask yourself. Will you be ready? This is when great businesses go on sale. Emotions rise and prices drop, and that's when long-term investors quietly do their best.

So start with quality, of course. Focus on companies with strong fundamentals, healthy economics, growing cash flow, durable moats. These are the businesses that can strive, not just survive. Don't rush in. Remember the song Only fools rush in deploy capital gradually, especially during volatile stretches, can help us avoid trying to catch a falling knife.

You can invest more as markets fall further, just not all at once. Let's read that again. Invest more as markets fall further, and that's not all at once. Use the regret minimization framework. Try to stay away from anything that you'll regret later. If you don't think it through, revisit your watch. List the stocks you wished you'd own at a lower price.

Go back and look. You missed a stock on its way up, and you're kicking yourself, why did I miss that stock? Well, now's your chance to go back and buy it where you wanted to. They're still executing. They're still gaining market share, or they're investing through the downturn.

Focus on the long term payoff Channel, that 80 20 rule, or I call it the power rule. Aim for the rare few companies that could outperform everything else in your portfolio combined. Almost all stocks are cheap In a bear market. That's a great time to invest in companies that tend to be overpriced in a bull market.

Look at some of the tech companies, how much they've corrected down. I bet you some of those tech companies are buying at prices. Where you originally thought you'd buy them and then you missed out on the opportunity, well, now they're back to where you wanted to buy them. Build your positions slowly.

Bear markets usually come in waves. You'll likely have more than one good entry point, but what you need to do is create that rules based approach and stay consistent.

Yes, your convictions will be tested. There's no doubt about that, but they will reward you for your preparation.

If you know what you're looking for, this could be the moment.

Another key takeaway is absolutely bear markets feel like chaos. They truly do. But for long-term investors like you and I, it can be a gift in disguise. The late Charlie Munger encapsulates it in a single sentence from his book, the Complete Investor. If you're not willing to react with equanimity to market price declines of 50%, two or three times in the century.

You're not fit to be a common shareholder. It just won't fit your attitude. Survival is not about brilliance, it's about behavior. Remember, don't confuse a bull market with intelligence.

So here's your checklist. Zoom out. Bear markets are temporary. History shows that they happen every few years and eventually give way to recoveries. The pain is short term rewards are long term, stay calm. It's an emotional roller coaster, but investing success comes from discipline, not reaction You don't need.

Perfect timing. You need staying power. Have a plan whether you automate your investing, deploy cash gradually, stick to monthly contributions, whatever you or your client does. The key in your plan is to remove guesswork. Let the rules carry you in good and bad markets. Focus on resilience. For businesses that can endure and adapt with strong balance sheets, loyal customers, a long growth runway.

These are companies that come out stronger on the other side better than they were. Buy selectively. When valuations compress future returns, by definition, expand. Markets offer rare chances to build positions in, uh, in quality names, maybe at decades, low prices and be patient the best opportunities won't feel obvious at first, but compounding happens quietly.

What matters isn't the next few months. It's the next few years I. You've heard this said by various investors in various ways, but when others panic, staying grounded is your edge. Their markets don't break great investors. They build or make them.

If this helped you stay calm, share it with someone else, maybe a client or a coworker, because. This do shall pass.

Thank you for joining me. I hope some of these insights were helpful to help you explain it to your staff or explain it to your customers. And as I said, any of the slides you'd like to use, feel free to use them in your own way. And I hope to see you again in a future webinar. Bye-bye now.