The first four months of 2025 have been anything but boring. In fact, they’ve offered a masterclass in market extremes — a stretch of time that has tested the patience, discipline, and emotional resilience of even the most seasoned investors. From euphoric highs to gut-wrenching drawdowns, the first 120 days of the year have packed in a decade’s worth of market behavior.
The year kicked off with confidence. After a strong finish to 2024, fueled by election optimism and favorable economic data, investors entered 2025 with risk appetite firmly intact. The momentum carried through January and into February, with the S&P 500 charging to new all-time highs. Sentiment was bullish, economic indicators remained resilient, and corporate earnings generally came in above expectations. For a moment, it felt like we were back in a more predictable, growth-oriented environment.
But as is often the case, the mood changed fast.
By late February, storm clouds began to gather. What began as rumblings of tension between major trading partners quickly escalated into a full-blown tariff war. The policy shift caught markets off guard. What had initially been viewed as posturing turned into action — new levies, retaliatory measures, and a breakdown in diplomatic negotiations. The ripple effect was immediate. Investor confidence faltered. Corporate forward guidance began to wobble. Capital started moving to the sidelines.
What followed was a sharp, self-inflicted bear market. The rapid deterioration in market sentiment and the escalation of macro risks triggered broad-based selling. Gains from the prior year were erased in weeks. And unlike previous corrections sparked by external shocks or cyclical slowdowns, this one felt preventable — and that made it all the more frustrating.
Volatility spiked aggressively. The VIX, often referred to as Wall Street’s fear gauge, surged 312% off its lows, reaching an intra-year high of 60.13 — a level not seen since the depths of the COVID crisis. Such a spike signaled not just uncertainty, but outright panic.
The damage to equities was widespread and severe:
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S&P 500: -21.34%
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Nasdaq Composite: -26.83%
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Russell 2000 (Small Caps): -29.90%
From peak to trough, the major indices dropped between 20% and 30%, officially entering bear market territory. These are not small corrections — they are the kind of moves that force difficult decisions, reveal flaws in risk management processes, and separate reactive investors from those anchored by strategy.
How Investors Handle Volatility
There’s no single right way to weather a storm. Some investors choose to sit tight, relying on the strength of their convictions and the resilience of their portfolios. Others lean on diversification, spreading risk across asset classes in hopes that some will zig while others zag.
Carson Investment Research recently published an insightful study examining how diversified portfolios perform across different bear markets.
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One key takeaway: no diversifier works in every environment. Without a crystal ball, it’s impossible to know in advance which asset class will protect capital best in a downturn.
Our Approach to Downside MarketsWe don’t pretend to predict markets. We know better. Instead, we follow a disciplined, rules-based process built on our proprietary indicators. When risk begins to rise, we react to changing market conditions.
On February 24th, 2025, we received our first major sell signal. By that
time, we had already begun significantly reducing our long exposure and
had initiated select short positions. Historically, however, our preference has been to ride out bear markets not with elaborate hedges, but with high levels of cash. We see sitting on the sidelines as a strategic decision — a chance to preserve capital and wait patiently for more favorable conditions.
When our signal flips back to “risk-on,” we’ll re-enter with confidence. Until then, capital preservation remains the priority.
The chart below presents a comparison of WCP’s performance relative to the Nasdaq, measured peak to trough from the onset of the sell-off.
Our risk management sell discipline was triggered early, and we remained lightly exposed to the market, maintaining a healthy cash balance throughout. Everyone loves to speculate about what the market will do—but the truth is, we have no idea. I certainly didn’t have a 2.5-month bear market on my bingo card.
The good news is, we don’t need to know what the market will do for our strategy to work. We don’t make trades based on predictions—we respond to what’s actually happening. We stay grounded in current market conditions and adjust accordingly.
Final Thoughts
If 2025 has proven anything, it’s that volatility is part of the game — and managing it well is what separates reactive investors from strategic ones. The headlines may be unpredictable, but your response doesn’t have to be. Periodic downturns are expected, particularly when our strategy falls out of favor. However, we want to emphasize a key strength of our approach that was evident in the first quarter—our risk management discipline. This framework helped contain losses in an environment that could have been significantly more damaging. As always, our approach remains the same: stay disciplined, follow the data, and protect capital when risk is high. The next opportunity will come. Until then, we wait — ready.
