Scott Kingsley, Senior Wealth Advisor
Markets are rarely calm at the point decisions need to be made.
Prices move, headlines turn negative, and the instinct is to wait.
Most investment outcomes are driven by behaviour, not timing.
Buffett’s approach has always been grounded in that idea. He doesn’t try to predict what happens next. He focuses on being prepared when it does.
That distinction sounds subtle. In reality, it’s where most outcomes are decided.
We are not trying to predict markets. We are structuring portfolios to navigate them.
One of the more useful things Buffett has said over the years is also one of the simplest: short-term market movements are not predictable.
Not difficult or complex. Simply not something that can be done with consistency.
You see it in everyday behaviour:
Each relies on getting two decisions right: when to step out and when to step back in. In practice, that’s where things break down.
Buffett removes that variable entirely.
If you accept that you cannot reliably predict short-term movements, the focus shifts to something more useful: how your portfolio is structured before those movements happen.
Buffett does pay attention to whether markets look expensive.
One rough valuation gauge he’s referenced is market capitalisation relative to GDP. It can be useful for setting long-term expectations, but it’s a broad brush measure rather than a timing signal or a precise estimate of fair value.
That’s useful context, but it’s often misunderstood.
Valuation isn’t a timing tool. It doesn’t tell you when markets will fall or how long they stay elevated.
If valuations are high:
That doesn’t mean you exit the market. It means you plan accordingly.
For most investors, the practical implication is this: when markets are expensive, discipline matters more. Not because a correction is imminent, but because you’ve got less room to recover from poor decisions.
Market volatility is uncomfortable, but it’s not unusual. What tends to cause lasting damage is how investors respond when they do.
There’s a consistent pattern.
Markets fall and investors move to cash.
Markets stabilise and investors wait for confirmation.
Markets recover and investors re-enter at higher prices.
The sequence feels logical. The outcome isn’t.
Research from DALBAR and Morningstar has repeatedly shown a gap between fund returns and the returns investors actually realise, often because money is added or withdrawn at the wrong times.
This is often referred to as the “behaviour gap”. In practical terms, it’s the cost of acting on instinct rather than following a defined approach.
Buffett’s edge has never been that he avoids downturns. It’s that he doesn’t allow them to dictate his actions.
If you’re not trying to predict markets, the question becomes how to structure around that reality.
A practical framework tends to include five elements:
Cash or near-cash should first cover planned spending, emergencies and near-term needs. Beyond that, excess cash often reflects hesitation rather than strategy.
A diversified core portfolio provides stability across market cycles. This is the part designed to stay invested, not be traded.
Exposure to long-term growth assets remains essential. These are the assets that benefit most from staying invested through periods of volatility.
The structure must reduce the need for reactive decisions. If the portfolio requires frequent intervention, it is unlikely to be followed consistently.
Some capacity to adjust over time is important. Not to predict markets, but to respond when conditions change.
One of Buffett’s more direct observations is that “pessimism is your friend, euphoria the enemy”.
In practice, that means opportunities tend to appear when sentiment is negative.
During market declines, good businesses don’t disappear. What changes is the price at which they are available. For long-term investors, that matters more than short-term noise.
The difficulty is behavioural.
Buying during a downturn rarely feels comfortable. The news flow is negative, forecasts are uncertain and there’s always the possibility that prices could fall further. Waiting feels safer.
But waiting comes at a cost.
Markets often recover before confidence returns. By the time the outlook feels clearer, prices have already adjusted.
As Vanguard data shows, some of the market’s strongest recovery days arrive very close to its weakest ones, which is one reason jumping out and back in can be so costly.
A more practical approach is not to try and pick the exact bottom, but to invest gradually. Phased investing, regular contributions and rebalancing allow you to participate without relying on precise timing.
For expats, these issues are often amplified. Cross-border portfolios introduce additional layers of complexity.
A market decline combined with an unfavourable exchange rate can distort decisions. A portfolio may fall in sterling terms even if underlying assets are stable, leading to changes driven by currency rather than fundamentals.
Expats often hold assets across multiple jurisdictions. Without a consolidated view, decisions are made in isolation, increasing the risk of inconsistency.
Moving between countries introduces new tax rules and reporting requirements, which can prompt adjustments driven by circumstance rather than strategy.
Income can be less predictable for internationally mobile professionals. Bonuses, currency shifts and relocation costs affect how and when capital is invested, increasing timing risk.
This is where structure matters most. Without it, decisions tend to be driven by circumstance rather than strategy.
A more practical way to manage volatility is to reduce decisions in the moment.
That starts with defining a structure in advance.
This doesn’t remove uncertainty. It does remove the need to interpret every market movement as a signal to act.
That’s the difference.
Buffett’s approach is often described as patient or disciplined. In reality, it’s practical. He accepts that markets will move in ways that are unpredictable in the short term, and structures his decisions around that fact.
For most investors, the challenge isn’t understanding this. It’s applying it when it matters.
Volatility is visible. Behaviour is not. But over time, it is behaviour that tends to shape outcomes.
The goal is not to avoid market movements. It is to ensure your portfolio and your decisions are not driven by them.
If you’d like to sense-check how your portfolio is positioned, we’re always happy to talk it through.
A short conversation can often bring clarity on whether your current structure is doing what it needs to, particularly across different jurisdictions, currencies and time horizons.