In recent times, we have witnessed significant market volatility that has understandably shaken the confidence of many investors. It’s important to acknowledge that while no one enjoys seeing periodic losses, these fluctuations serve a vital purpose in the marketplace.

If asset prices consistently rose without interruption, they would likely skyrocket to unsustainable levels, driven solely by an overly confident investor base. Market corrections create the necessary environment for reasonable asset pricing, allowing for more sensible valuations. As investors, it’s crucial to remember that some of the best buying opportunities arise during periods of high volatility. Keeping an element of fear is healthy for the market, and the more widespread that fear is, the better for investors who sit tight. Warren Buffett famously stated, “You make your money in bear markets, not in bull markets.” The implication being that behavior during bad times has much more bearing on long-term results than rising markets. Holding tight and acquiring more are the “hard-to-do” behaviors but are also the ones that matter most.

You may wonder why we don’t simply raise cash and wait out these tumultuous periods. One of the primary reasons is our dedication to minimizing tax implications for our clients. Selling securities during market downturns—when many may feel inclined to do so—can lead to substantial capital gains taxes, particularly given the large unrealized gains we currently have on our books. Paying taxes is a near-certain byproduct of trading activity. However, the activity of selling out and attempting to reinvest at a more advantageous time is far from certain.

We do harvest tax losses during market disruptions. We do this in the form of intra-strategy position swaps where we seek to upgrade positions. We are not sitting idly by but instead are playing the best odds of success while maintaining our bias for exposure and taking advantage of the tax code. 

Our forty years of experience have taught us that attempts to tactically maneuver around market volatility are fraught and often lead to costly mistakes. Against our advice, some clients intervene to raise cash for emotional relief and routinely buy it all back higher.  Instead of fleeing to cash, we believe in staying the course and focusing on your long-term investment strategy.

Market volatility is actually the key to your long-term investment strategy – shining a light on how much risk you can handle. Investors who lack resolve will normally exit the market with wounds and the capital they leave behind accrues to the remaining long term participants. At Segment, we build your investment strategy on the expectation of market volatility – engaging only as much risk as we think you can handle, particularly during such times. This is the “art” part of the business. We strive to be a reliable guide in both good and challenging times, and we are thankful for the trust clients place in us.

Please see IMPORTANT DISCLOSURE information.