Five Years Have Passed: Lessons from Market Cycles

Looking back, it’s incredible how quickly things can change. Think about the euphoria of the dot-com bubble, the crash that followed, and nearly three years of negative stock market returns. Then came the global financial crisis, reshaping economies for years.

Events that feel fresh to some are already history for others—often forgotten in the rush of time. It has now been five years since COVID-19 shut down the world. Markets plummeted, then rebounded, shifting from growth to value investing. They faced setbacks in 2022 and 2023, alongside rising inflation, interest rates, and geopolitical crises in Ukraine and Gaza.

Yet today, despite these challenges, the markets have soared. The S&P 500 hit an all-time high of 6,129.58, after plunging to 2,237.40 in March 2020. The FTSE 100, once at 5,190, now sits at a record 8,700+.

The Rise of Index Strategies & Market Leadership

We've witnessed the dominance of passive investing, with active managers struggling—yet a handful of mega-cap stocks in the US, Europe, and emerging markets have driven substantial gains.

Lessons from Investing

One of the most valuable lessons I’ve learned is how to view investing over time.

Imagine investing £100,000, walking away for ten years, and returning to find £150,000. You’d be happy. But we constantly check our investments in today’s 24/7 financial news cycle. Every short-term dip feels like a loss, even if the overall value remains positive.

The past five years have reinforced a critical truth: Investing is a long-term game. Reacting to short-term market swings often leads to poor decisions.

The Challenge of Market Timing

Looking back to 2020, some trends were predictable. Certain stocks were hit hard, and their recovery seemed inevitable when a vaccine was introduced. But the timing was uncertain—when would the vaccine arrive, and when would these stocks bottom out?

Fast-forward to 2022 and 2023, and investor sentiment was near rock bottom. If you tracked market behaviour, you could see we were close to a turning point. However, when and where the recovery would happen remained unclear.

For nearly 12 months between 2022 and 2023, the S&P 500 barely moved. And now, as we look ahead, we face similar questions:

Key Market Questions for the Next 5 Years

• Will index strategies continue to dominate, or is now the time for actively managed investments to shine?

• Will the same mega-cap stocks lead, or will markets broaden with a more diversified rally?

• Is the US overvalued? Are Europe and emerging markets offering better opportunities?

• Are investment trusts a hidden gem or a dying breed?

• Has Trump overplayed his hand? How will trade policies and global markets react?

Investing: Strategy vs. Speculation

Whether investing for ourselves or clients, we must remember that investing is not gambling.

If we believe we can consistently predict the market, we’re gambling. But if we accept that while markets are unpredictable, we can still find high-quality investments for long-term growth, then we are on the right path.

Summary: Where Are We Now?

Two key charts guide my thinking:

Investor Behavior—In September/October 2023, we were despondent. The historical trend was clear. Today, we’re shifting closer to euphoria.

Fear & Greed Index: Twelve months ago, we were in greed territory. Now, we’ve fallen into extreme fear.