Drawdowns, discipline and the power of staying the course

Over the past few weeks, many market participants would have experienced some anxiety and it is completely natural to feel that way. In early April, the S&P500 experienced a two-day drop of more than -10% combined, something that has only happened three other times in the past 85 years. The crash of 1987, the Global Financial Crisis (GFC), and of course the Covid19 crisis, which is all too fresh in all of our minds.

Historical Perspective on Market Drawdowns

Looking back, the US equity market has encountered severe downturns that, though dramatic at the time, ultimately lead to great buying opportunities.  For example, on Black Monday in October 1987, where most major indices fell over -20% in a day. Had you bought at this time you would have ultimately been rewarded, similarly in the Global Financial Crisis of 2008. Etched in all our memories is the most recent, the Covid-19 pandemic. Despite the big losses, the rapid rebound that followed reminded investors that market recoveries can be swift and powerful, and especially, costly if you miss them.

What does the sage of Omaha, Warren Buffet have to say about market turmoil?

At times like these we often remind ourselves of some of the famous Warren Buffet quotes. His investment philosophy has stood the test of time and has over this short recent crisis also proved to be resilient. His investment vehicle Berkshire Hathaway over the course of the Trump Tarriff turmoil of Apil 2025 has outperformed the broader US Market (S&P500) by 2.6%. (as measured from 31 March to 11 April 2025).

Some of our favourite Warren Buffet quotes are;
• “Be fearful when others are greedy and greedy when others are fearful.”
• “The market is a device for transferring money from the impatient to the patient.”
• “Our favourite holding period is forever.”
• “Only when the tide goes out do you see who's swimming naked.”

The Rebound That Reinforces Long-Term Thinking

Following the steep declines of Thursday 3rd and Friday 4th of April, the markets rebounded nearly 10% on Wednesday 8th of April 2025. The S&P having lost -9.1% in the prior week, ended the week (11 April 2025) up 5.6%. This impressive recovery serves as a stark reminder of the risks of making impulsive decisions during periods of extreme volatility. Had investors panicked in the first week of April and liquidated their positions, they would have missed what became the 10th biggest trading gain on the S&P 500 since 1900 on Wednesday 8th of April and one of the better weeks returns too. The contrast is even more striking in the case of individual stocks. Take Nvidia, for example, it ended the week of 4 April down 10.6% at $1,805, only to rebound by an impressive 17.7% the following week (ending 11 April 2025), closing at $2,124. Such sharp recoveries not only help restore investor confidence but also serve as a reminder that significant drawdowns can be followed by equally substantial rebounds.

Conclusion

These historical lessons and Buffett’s “sagacious” words all lead to a simple conclusion. Although sometimes it seems corny to quote the old adage that “it’s time in the market, not timing the market”, that produces lasting investment returns, it remains true.  While it is natural to feel uneasy and concerned during periods of rapid price declines, history shows that maintaining a steady course in investments is the key to success. 
 

In essence, investors who, remain patient, and resist the urge to panic can often turn market volatility into one of the greatest opportunities for long-term financial growth. Within the PPS Stable Growth Fund, we have held our asset allocation positioning and topped up local equity positioning with one or two shares that have exhibited value in the pull back. We also utilised some currency derivatives to protect the portfolio in the case of a weakening Rand which has helped dampen the volatility experienced month to date. This all ties back to the absolute return mindset of the Fund and the boutique hedge fund abilities of the underlying manager, Laurium Capital.

Disclaimer:

PPS Investments is a subsidiary of Professional Provident Society Insurance Company Limited, a Licensed Insurer and Financial Services Provider. PPS Investments consists of the following authorised Financial Services Providers: PPS Investments (Pty) Ltd, PPS Multi-Managers (Pty) Ltd and PPS Investment Administrators (Pty) Ltd; and includes the following approved Management Company under the Collective Investment Schemes Control Act: PPS Management Company (RF) (Pty) Ltd. Financial services may be provided by representative(s) rendering financial services under supervision. www.pps.co.za/invest

Collective Investment Schemes in Securities (CIS) are generally medium-to long-term investments.  The value of participatory interests (units) may go down as well as up, and past performance is not necessarily a guide to future performance. CIS are traded at ruling prices and can engage in borrowing and scrip lending up to 10% of the market value of the portfolio to bridge insufficient liquidity. A schedule of fees and charges and maximum commissions is available on request from the manager. A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate. The manager does not provide any guarantee either in respect of the capital or the return of a portfolio. Certain funds may be exposed to foreign securities and as such, may be subject to additional risks brought about by this exposure. Laurium Capital (Pty) Ltd is a Licensed Financial Services Provider (34142).