April 11, 2025
Steady Hands in Shaky Markets: Real Lessons for Market Turbulence
When markets turn chaotic, we believe the difference between success and failure lies not just in having a solid plan, but in having the courage to execute it.
The past two weeks have seen markets swing with the kind of volatility that makes even seasoned investors question their convictions. With price movements that would normally occur over a month or more compressed into hours, we’re witnessing the kind of market action that historians will study for decades to come. The combination of massive policy changes, liquidity concerns, and a significantly altered global backdrop has created a perfect storm. While stocks partly recovered from one of the fastest declines in decades, typical safe havens like U.S. Treasury bonds and the U.S. dollar are losing value.
We expect to see more volatility. In the coming months, global trade relationships built over many decades may be completely redesigned. America’s reputation as the financial cornerstone of the world is being questioned, while many other established systems are being disrupted.
The Hollow Ring of Advice
Everyone is facing the same challenge right now: figuring out what advice to trust when the future is highly uncertain, and it seems we have some shifts in store that will have significant and lasting global impact.
In times like this, you can count on your investment advisor to tell you not to panic, stay focused on the long term, and remain invested so you don’t miss the eventual rebound. These are not mere platitudes. But for them to work, you must have a sound strategy in the first place and the capacity – both the resources and time – to stick with it.
And that’s why this advice often rings hollow. How do you know your strategy is the right one? What if things turn out worse than anyone expects? What if you miss the buying opportunity of a lifetime? A solid plan is only as good as your ability to execute it, and it becomes exponentially harder to follow your plan when markets are in turmoil and emotions are running high.
lessons from market crises
So how do we move beyond advice to actionable wisdom? The answer lies in learning from those who’ve successfully navigated similar waters before.
While we’re not currently in a market crisis – generally defined as a period of steep asset price declines, widespread debt defaults, and liquidity shortages in financial institutions – it pays to be prepared for the possibility.
The markets have navigated several major market meltdowns over the last 30 years. Each followed a similar pattern: a triggering event exposed massive insolvency somewhere in the system: Orange County’s bankruptcy, Long Term Capital Management’s collapse, Lehman Brothers’ failure, or the wave of corporate bankruptcies during COVID. The resulting fallout typically included a painful recession.
What generally saves clients from the worst damage isn’t luck or perfect foresight – it’s having both an investment policy and a crisis playbook ready before the storm hits. After all, trying to develop a coherent strategy while markets are in freefall is like trying to design a fire escape during a blaze. We don’t (and we won’t) nail every decision, but we are pretty good at sidestepping the catastrophic mistakes that derailed many investors.
Each crisis reinforced some fundamental truths about markets and investing that now form the backbone of our approach.
lessons on investing during A CRISIS
- Stay invested and stick to your discipline. Like a candle in a dark room, a little clarity and conviction goes a long way.
- Prepare to be surprised. We can’t predict, but we can prepare.
- Simplicity may not be very exciting, but it gets the job done.
- Don’t let what you want to happen contaminate your view of what is likely to happen.
- Government stimulus matters more than you think.
- Patience is a sure thing. The more decisions you make, the more chances you’ll be wrong.
BEWARE OF HIGH-CONVICTION PREDICTIONS
While these lessons provide a solid framework, executing them requires overcoming the psychological traps that can potentially sabotage even the best investment strategies. Many of these are familiar today:
Expertise Paradox: Those with the least knowledge in a domain tend to be the most confident in their judgments, while true experts recognize the limits of their knowledge.
Status Quo Bias: We have an irrational preference for the current state of affairs, perceiving changes as losses rather than potential opportunities.
“It's generally human nature to overestimate risk and underestimate opportunity.”
Loss Aversion: We feel losses much more intensely than equivalent gains, causing us to make decisions that prioritize avoiding losses rather than maximizing gains.
Time Horizon Distortion: People systematically overestimate what can be accomplished in the short term while dramatically underestimating what’s possible in the long term.
Probability Weighting Errors: We overweight small probabilities (like lottery wins or catastrophic events) while underweighting high probabilities.
Certainty Effect: We disproportionately prefer absolute certainty over even slightly probabilistic outcomes, even when the expected value is higher with the uncertain option.
Recency Bias: Recent events have outsized influence on our predictions, causing us to extrapolate short-term trends too far into the future.
Narrative Fallacy: We craft stories to explain random or unconnected events, then mistakenly use these fictional stories to predict future outcomes.
Anchoring Bias: Initial information shapes how people interpret everything that follows, even when that starting point is random, irrelevant, or deliberately manipulated.
When someone speaks with certainty amid chaos, that’s often your signal to be skeptical. Our natural tendency toward overconfidence often leads us to believe we can predict market outcomes when uncertainty is highest, which is precisely when predictions are least reliable. Having a solid plan is essential, but it’s the conviction to follow through during market turbulence that truly determines success—neither works effectively without the other. This is why seasoned wealth management teams—like your team at Fulcrum— make such a difference; they bring both the decisive action and the measured humility that only comes from guiding clients through previous financial storms.
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