Unconventional wisdom: Navigating the most challenging market in history
There has never been a better time to be an investor…and a harder time to be a good investor.
Conventional wisdom is a byproduct of groupthink that presents solutions good enough for the average person while simultaneously not being right for any individual. You follow it at your peril. Each Monday I will challenge the investing norms that just may be holding you back from living the life you want.
Unconventional wisdom: Navigating the most challenging market in history
”It was the best of times, it was the worst of times.”
- Charles Dickens
On the surface it seems like an easy time to be an investor. The following chart created with data from Vanguard shows returns from different asset classes as of 30 June 2025.
It is remarkably consistent. In most cases, 1-year returns are higher than 5-year returns, which are higher than 10-year returns, which are higher than 20-year returns. We are in one of the best return environments ever – and shouldn’t forget that.
In addition to strong returns, fees and transaction costs continue to drop and access has broadened so even investors with small amounts of money can take part in this bounty.
Yet against this rosy backdrop I keep hearing the same concerns. Many people with years of investing experience are finding today’s environment more challenging to navigate.
Is this a case of seeing the past with rose-coloured glasses? Maybe. But I think people are onto something. In a discussion with Shani she summed it up perfectly – there has never been a better time to be an investor…and a harder time to be a good investor.
I’ve grouped the unique challenges investors are facing in two broad categories:
- Navigating the data age
- Confronting the passive juggernaut
Afterwards I’ve offered some tips on investing in a challenging environment.
Navigating the data age
New technology has repeatedly changed the way people invest from the telegraph, to the telephone, to the internet. These changes will continue.
All challenges are surmountable but as technology leaps forward investors must adjust their approach. I believe there are three main challenges for investors as we advance in the data age.
Information overload
Morningstar was founded to democratise access to information. This is a mission I wholeheartedly support. For too long investing was plagued by informational asymmetry where professional investors profited from getting access to things individuals didn’t. This has changed and it is a good thing.
That does not mean a 24 / 7 news and opinion cycle is beneficial for investors. There is a difference between noise and signal. The more information thrown at you the harder it is to figure out what matters.
Anyone and everyone can express their opinion in the age of decentralized media - the qualified and unqualified, the independent and conflicted.
It isn’t about being right or wrong – everyone is wrong sometimes. It is the lack of context to the constant swirl investors must wade through. It is increasingly hard to stay disciplined and focused and many investors churn their portfolios.
Frictionless trading
Vanguard founder John Bogle wasn’t a fan of ETFs. ETFs are easy to trade and Bogle believed ETF investors would earn lower returns by trading too much. Studies have shown this has occurred with investors holding ETFs earning lower returns than those without.
Lower transaction costs and ease of trading are a good thing…unless they induce investors to trade too much. Countless studies have shown the more an investor trades the lower their returns. It takes more discipline to resist doing something when it becomes cheap and easy.
Fewer investors are like you and me
Speculation and short-termism are not new. But they might be at an all-time high. It is challenging to be a long-term investor when so many people are playing a different game.
Speculation is always part of a long-bull market but it is being turbo charged as financial “innovation” drives frictionless access to new types of options, CFDs and leveraged products. Individual investors have embraced these speculative investments.
The data age has also changed the way sophisticated professionals invest. Algorithmic and high-frequency trading and short-term strategies have proliferated. AI will further this trend.
This is not a conspiratorial rant. The data bears it out. In June of 2020 the average holding period of a share trading on the NYSE was 5 ½ months. This was down from a high of almost 8 years in the mid-1960s. This is unsurprising as the London School of Economics estimates that algorithmic trading makes up 60 to 70% of all volume.
CBOE data shows that through September 2025, option trading volume in the US increased 22% over 2024 which was the sixth straight year of increases. Current volume is ten times higher than 2019. Much of this is speculation.
Fundamental investors with long-time horizons have less influence over short-term market movements than they did even a decade ago. Price movements are a signaling mechanism and it can be hard not to react even if you know price changes are driven by investors with different goals and strategies.
Confronting the passive juggernaut
A study from March of 2025 explored the scale of the impact on markets from the growth in passive investing. Authored by Hao Jiang, Dimitri Vayanos and Lu Zheng the study is called Passive Investing and the Rise of Mega Firms.
The study found the shift to passive has pushed the market higher by increasing the prices of the largest companies. Investors reallocating from active to passive makes the market go up even if no new money is invested.
It is the largest firms that are most influenced by the rise of passive as a disproportionate amount of any passive investment goes to the largest companies in a market cap-weighted index.
The largest firms also benefit from a secondary impact caused by individual investors’ preference for large shares and tendency to chase performance. Money pouring into passive increases the share prices of large companies which causes more investors to follow suit.
The increasing prevalence of passive investing will also influence prices in a bear market as investors sell. Passive is not a panacea.
In bull and bear markets passive has fundamentally changed the investing conditions and investors with experience in the pre-passive world may find this challenging.
How should you respond to today’s market environment?
As the dotcom frenzy gained momentum the old investing approaches got thrown out the window. In retrospect this was simply a way to justify valuation levels that couldn’t be explained in other way.
We can laugh at the folly of a ‘this time is different’ mentality because we know what happened. But at the time it seemed reasonable to think the market environment had changed and investors needed to adjust.
That is because market environments do shift. Ben Graham’s deep value approach stopped working in the 1960s after a 30-year run of success. To remain successful Buffett shifted his tactics but not his principles.
There is undoubtedly hype building today and some silly speculation going on. But I think even long-term fundamental investors should acknowledge the shift in the market environment. In the spirit of Buffett here are some ways investors should consider adjusting tactics while maintaining principles.
You can’t ignore passive
Given the growth in passive, it is increasingly difficult to beat a rising market without owning some of the biggest companies. In a falling market outperformance will be difficult without owning smaller companies.
If your goal is to beat the market you must consider the impact of passive in your criteria for picking shares. This won’t be the only factor in how a share performs but it will play a role over the short and long-term.
When doing research figure out which indexes contain that share and where it sits in the index. Consider how passive buying and selling might influence the share price in addition to changes driven by fundamentals. This should not be your only, or primary, criteria for evaluating a share but it also shouldn’t be ignored .
If you can’t beat ‘em, join ‘em
There are a lot of advantages to investing passively and most long-term investors will be able to achieve their goals with market returns. Consider passive if investing seems too hard and you can’t navigate today’s market.
Get out of the mentality that passive is settling for average - investing is a means to an end and average will likely get you where you want to be.
Is beating the market the best way to achieve your goals?
I own individual shares because I’m pursuing a passive income growth strategy. I’m not trying to beat the market. I’m trying to grow my passive income stream at a rate that meaningfully exceeds inflation.
I want, and expect, capital gains but I’m happy if I underperform an index and reach my passive income target.
Think about what it takes to get what you want out of life. It might be capital preservation or low volatility or any number of goals. Track progress against your goal and not an index.
Maintain discipline
I’m a big fan of the refrain that the more somebody differs from you, the less useful their advice. I’ve found the best way to navigate the behavioural challenges of the data age is to clearly understand what I’m trying to accomplish and who I am. This helps me ignore non-relevant noise.
This isn’t easy when a strategy different than mine is doing well. I remind myself that there are always going to be better performing strategies and better performing investments. Trying to constantly shift into something better is how investors sabotage themselves.
My strategy is based on my personal circumstances and what I want out of life. Build conviction in your own plan as ballast against the constant temptation to trade in the data age.
Final thoughts
As investors we must adapt to current conditions while remaining moored to the foundational truths that guide investing.
Change and uncertainty are hard which makes the current environment feel challenging. The past appears safe because we know what happens.
Debating if investing today is harder than ever is just conjecture. If investing wasn’t hard, it wouldn’t be so rewarding.
Please share your thoughts by emailing me at [email protected].
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What I’ve been eating
I have a routine for my first night in Hong Kong. I have Peking Duck prior to a night out in Lan Kwai Fong - during which I vow to never return to Lan Kwai Fong. I am yet to keep this vow. This year my pick for duck was Duddell’s. The duck is ceremoniously presented for the mandatory monosyllabic - yet genuine - grunts of admiration.
Presentation complete, an 85-year-old woman brandishing a cleaver falls upon the duck with the skill and efficiency of Jack the Ripper. She leaves behind the beautiful scene in this photo and takes the carcass back to the kitchen for sang choy bau.
