The market drawdown from Liberation Day on April 2, 2025 now looks like a passing nightmare.
The S&P 500 fell roughly 12% from the close on April 2nd to its trough on April 8th. Since then, the market has largely recovered.
Although it was a short and swift drawdown, I observed something interesting on fintwit. Many investors started raising cash by selling stocks—including supposedly seasoned ones who frequently quote Buffett’s “Be fearful when others are greedy and greedy when others are fearful.”
They were doing the exact opposite.
Shoring up cash during a drawdown isn’t ideal, but if it affects your peace of mind, then we have less of a choice. After all, decision-making is key to investing. And if your judgment is clouded by emotions from volatility, then you gotta do what you gotta do to stay sane.
That is why investing is particularly personal. I hate to say this, but whenever an acquaintance finds out what I do, they always ask what they should be buying or selling in the stock market. I’ll always have to reply with, “It depends.”
It depends on your risk appetite, your asset composition, your age, the stability of your cash flow, and your experience in the market.
But I think many investors’ recent actions were shaped by their most recent experience: the 2022 drawdown. That one lasted 282 days before hitting bottom and took roughly another 270 days to recover.
It was a painful one. I know it reshaped the behaviors of many investors, particularly near the bottom.
Here’s the thing: the market is a terrible teacher.
In bull markets, investors leave no room for doubt. They feel invincible. Everything they touch turns to gold. Cash becomes trash, and diversification is for know-nothing investors.
In bear markets? Investors feel like the world is ending. That a disaster of this magnitude is “unprecedented”. And that investing has fundamentally changed.
Because it’s painful. And the brain scatters around looking for ways to alleviate that pain.
I think because plenty of investors started during the pandemic, the 2022 prolonged drawdown made them sell at the first sight of trouble. To alleviate the pain extremely quickly.
And that played a role in many investors shoring up cash during this recent drawdown instead of deploying it—preemptively avoiding the pain that comes with a prolonged downturn.
Buffett’s recent comments about handling the Liberation Day market drawdown are worth highlighting (LINK):
“What has happened in the last 30-45 days, 100 days, whatever this period has been, is really nothing…If it had gone up 15% instead of down 15%, people would take that with remarkable grace. But if it makes a difference to you whether your stocks are down 15% or not, you need to get a somewhat different investment philosophy because the world is not going to adapt to you. You’re going to have to adapt to the world. That’s part of the stock market, and that’s what makes it a good place to focus your efforts if you’ve got the proper temperament for it and a terrible place to get involved if you get frightened by markets that decline and get excited when stock markets go up. I don’t mean to sound particularly critical – I know people have emotions, but you’ve got to check them at the door when you invest.”
Checking emotions at the door is particularly important with investing. We can’t let price movements distort our judgment or thinking. And everybody is born with different levels of emotions.
We all have different emotional responses to market volatility. Some folks feel the gut punch more intensely when their portfolio drops, while others can watch the swings with relative calm.
While we can’t change our genetic makeup, what we can do is ensure our investing philosophy and personal finance structure lets us take advantage of drawdowns—not the other way around.
A proper, well-thought-out investing philosophy should let you survive through market cycles.
As the markets take a breather, use this opportunity to think about your investing philosophy and personal finances. Consider your portfolio diversification, cash levels, and future expenses. Make sure your strategies allow you to take advantage of drawdowns, not become a victim of them.