The MSCI AC World index declined 1.3% in USD in the 1^st quarter of 2025, while the Rand strengthened 2.8% against the Dollar. Our own portfolios gained in the 1^st quarter as the gap between US Megacaps and other international markets narrowed slightly. The real news however is what took place in the 1^st week of the 2^nd quarter where global stock markets fell 10% in the few days following the announcement of fresh tariffs from the US administration. The average ‘Magnificent Seven’ stock has declined 24% in 2025 (as of 7 April), more than double the global stock market. (Tesla has lost 42%.) The Rand also weakened 7.3% against the Dollar in the 1^st week of April as concerns around local politics compounded the effect of international tensions.

So how should we respond to this sudden resurgence of market volatility? One approach would be to try and estimate the impact of tariffs on various countries, industries and businesses and then position accordingly. This approach is fraught given the inherent unpredictability of international tariff policies and their impact. The very nature of increased volatility is that it is associated with heightened uncertainty about the future.

Our preferred approach to facing uncertainty is to focus on robustness. A robust investment process is one that delivers satisfactory returns under a wide range of potential outcomes. What does this look like in practice?

1. Invest in fundamentally sound businesses, which are consistently profitable, cash generative and unencumbered by excessive debt. When fundamentals are tested by economic stress, these are the companies that will endure.

2. Avoid shares that are priced for perfection. During times of optimism, investors become accustomed to favorable outcomes and price stocks as though these outcomes are normal. They’re not normal. When outcomes inevitably disappoint, these stocks can face the steepest corrections.

3. Diversify your portfolio across different industries and geographic regions. This has always been a cornerstone of effective risk management. A portfolio focused on one specific niche is most at risk.

4. Don’t put yourself in a position where you become a forced seller of assets. This means having sufficient cash flow to meet near-term liabilities, as well as avoiding excessive financial leverage.

5. Remain disciplined. Don’t let market volatility derail you from your long-term financial plan. Resist the temptation to time the market. The investors who experience the most regret are those who sell out because of fear and fail to buy back again. The two reasons they fail to buy back again are: i) They got their timing wrong and they can’t stomach buying back at a higher price; ii) They got their timing right, but as the market continues to decline, fear is heightened rather than alleviated. The best time to buy is also the most uncomfortable time to do so. As Warren Buffett said, ‘Be fearful when others are greedy and greedy when others are fearful.’ This statement is true, but by its very truth also impossible for the majority to apply in practice. It’s much easier to predetermine a robust course of action and stick to it.

We’re committed to applying our investment process consistently in all market conditions. We’re also actively working through the potential opportunities presented by the recent market volatility to see where we can improve the quality and return profile of our portfolios.