Following two years of stock market turbulence, Sarasin & Partners‘ Deputy Model Portfolio Manager, Henrietta Walker, says advisers should establish realistic investment expectations with clients – as well as a sound, mutually agreed investment plan – to ensure they remain confident during periods of underperformance and in bear markets.

As COVID-19 hit in 2020, the S&P fell over 30% from its February high in a matter of months before bouncing back up to pre-COVID levels by August that year. By the end of 2021, mega-cap tech valuations had spiked to extraordinary levels, with the NASDAQ up 26.6% for the year, before entering a downward spiral in 2022 after Russia’s invasion of Ukraine.

The explanation for such fluctuations – when the underlying story of many companies has not changed materially – lies partly in investors’ own propensities for excess. Stock markets abound in behavioural traps for the unwary.


A rising market probes for greed and plays on it, tempting investors towards higher-risk strategies that promise higher returns. The more the market rises, the greater temptation there is to increase levels of risk, and abandon sound investment principles. Yet, the higher the market goes, the lower the incremental potential return is likely to be. A falling market probes for fear, tempting investors towards lower-risk strategies given the anticipation of further price falls. The lower the market goes, the greater the temptation to reduce risk and abandon fundamental investment beliefs. Yet history shows that the lower the market falls, the greater the potential future returns.

The circle is complete when investors are lured into buying at the top and terrorised into selling at the bottom.

When not inciting fear or greed, the market probes for vanity, inviting investors to interpret political events, anticipate economic cycles, divine the course of inflation and assess the merits of tens of thousands of companies. Even if an underlying judgement is correct, the timing may still be wrong. Once detached from fundamental beliefs about the right way to approach investment, investors are likely to fall back on opportunistic trading, thereby becoming doubly exposed to the distorting influences of greed and fear.


Protecting portfolios from emotions

Greed, fear and vanity are elemental weaknesses. Not even the most sophisticated investment professional is immune to them. Knowing both they and their clients are prey to these powerful forces, how can advisers best protect their clients?

As many advisers will know, countering behavioural biases starts at the very beginning of the client/adviser relationship. Advisers should help clients build realistic expectations about what can be achieved by stock market investment. Thorough factfinding should result in an investment plan that is well-suited to the client’s individual needs as well as their personality. It stands to reason that clients who have a strong conviction in the underlying philosophy of their portfolio are likely to better withstand periods of underperformance.


No single approach to investment is right all the time, so there are bound to be periods of underperformance. An all in-one, balanced, portfolio solution, with a clearly defined risk budget, can serve as a useful tool in helping investors weather market cycles, secure in the knowledge that their strategic asset allocation is in line with their long-term goals. The Sarasin Model Portfolios and Responsible Model Portfolio ranges each offer access to five thematic multi-asset portfolios, differing in their strategic asset allocation and long-term risk objective. Each portfolio is built around carefully modelled allocations to a range of different assets but additionally the portfolio managers have the flexibility to tactically adjust asset allocation based on their views and the prevailing market conditions – provided it fits within the overall risk budget.

Avoiding temptation

We are aware of the pressure that advisers may feel from clients when performance passes through a difficult period so, in weaker moments, there may be a temptation to change course and adopt an approach that seems more in keeping with market fashions. However, a mutually agreed investment plan, in which both adviser and client have conviction, is key to resisting the play of the markets on the emotions and breaking the distorting cycle of greed and fear.


Helping clients understand economic cycles – and particularly the nature of bear markets – is important, particularly for those who may have limited experience of bear market conditions. There are two sorts of bear market, the most common being the short, sharp variety, while the other is the slow, lingering type. Bear markets are often rooted in deteriorating economic conditions, which are magnified dramatically by investors revising down their perceived valuations of financial assets as conditions worsen.

Bear markets may begin when least expected, often after a euphoric bull market in which many new investors have come to believe that investing is much less risky than it really is. Bear markets are usually well established by the time most commentators accept that the bull market is really over. Once a bear market is established, the world looks very different: some investors question whether the stock market is an appropriate medium of investment at all.

This sense of shock should not be underestimated – bear markets shatter investor confidence in ways scarcely imaginable at the peak of a bull market.


Despite the rapid recoveries witnessed in 2009 and 2020, investors should not expect central banks to ride to the rescue after every collapse in confidence and asset values.

Far better is to ensure that an investor’s mind-set and their portfolio are well-prepared ahead of time to cope with bear markets – whether short and sharp or slow and lingering – that will inevitably occur from time to time.

Important information


This article has been issued by Sarasin & Partners LLP which is a limited liability partnership registered in England and Wales with registered number OC329859 and is authorised and regulated by the UK Financial Conduct Authority. It has been prepared solely for information purposes and is not a solicitation, or an offer to buy or sell any security.

The information on which the article is based has been obtained from sources that we believe to be reliable, and in good faith, but we have not independently verified such information and we make no representation or warranty, express or implied, as to their accuracy. All expressions of opinion are subject to change without notice.

The investments of the Model Portfolios are subject to normal market fluctuations. The value of the investments of the Model Portfolios and the income from them can fall as well as rise and investors may not get back the amount originally invested. If investing in foreign currencies, the return in the investor’s reference currency may increase or decrease as a result of currency fluctuations. Past performance is not a guide to future returns and may not be repeated.

Neither Sarasin & Partners LLP nor any other member of the Bank J. Safra Sarasin group accepts any liability or responsibility whatsoever for any consequential loss of any kind arising out of the use of this article or any part of its contents. The use of this article should not be regarded as a substitute for the exercise by the recipient of his or her own judgment. Sarasin & Partners LLP and/or any person connected with it may act upon or make use of the material referred to herein and/or any of the information upon which it is based, prior to publication of this document. If you are a private investor you should not rely on this article but should contact your professional adviser.

© 2022 Sarasin & Partners LLP – all rights reserved. This article can only be distributed or reproduced with permission from Sarasin & Partners LLP.

Henrietta Walker, Deputy Portfolio Manager for Model Portfolio Service


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