Sea of green

Last week's volatility, particularly in technology stocks, has once again raised questions about valuations, the sustainability of the AI boom and the direction of equity markets.

A good moment to put things into perspective.

The chart tells a remarkable story. More than 30 years of S&P 500 returns, including the dot-com bubble, the financial crisis, Covid, inflation, wars and plenty of other reasons to worry. And yet, what dominates is a sea of green.

Every completed investment period of 15 years or more shown in the chart delivered a positive annualised return. Not every year was pleasant, far from it, but patience was rewarded.

Of course, this does not mean buying equities at any price. Valuations matter, and so does the quality of the businesses we own. A good company is not necessarily a good investment if you pay too much for it. Last week's volatility was a useful reminder of that distinction.

But there is another risk investors tend to underestimate: the risk of not being invested. Markets do not wait for uncertainty to disappear before recovering. And some of the strongest trading days tend to occur when sentiment is at its worst.

After 30 years of managing equities, I have come to appreciate that successful investing has less to do with predicting the next correction than with understanding the earnings power of the businesses we own and having the patience to let that value materialise.

Time is not a guarantee of returns. But it remains one of the greatest allies of the equity investor.