Investment Approaches in Volatile Markets

Cognitive biases every investor should watch…plus the perfect cheat sheet to keep handy! The longer I’ve been investing, the more I have realised that mastering markets starts with mastering your own psychology. Not the analytical or informational side. (They are also important but it’s become much harder to successfully compete there.) It’s the behavioural side where the real edge lies. That’s why I’ve put real focus on understanding the many cognitive biases that quietly shape our decisions. Here are my top five to keep front of mind: 1️⃣ Anchoring bias: Fixating on an initial price (e.g., purchase price or target) can stop you re-evaluating when facts change. 💡Periodically reassess your portfolio as if you were constructing it from scratch. 2️⃣ Authority bias: A star fund manager’s view isn’t a substitute for your own research. 💡 Question sources, don’t idolize them. 3️⃣ Confirmation bias: We hunt for evidence that supports our position and ignore what contradicts it. 💡 Actively seek disconfirming data. 4️⃣ Outcome bias: Judging a decision by its result rather than the quality of the decision process leads to false lessons. 💡 Don’t buy a fund only on the basis of past performance (or ratings). 5️⃣ Recency effect: Recent market moves feel more important than they are. Don’t let short-term performance dictate long-term strategy. 💡 Build plans on fundamentals and probabilities, not yesterday’s headlines. 📌 My tip: save this post to keep the attached full list close at hand. (+++Opinions are my own. Not investment advice. Do your own research.+++) 👋 Follow me for my daily investing nuggets, musings on markets, and hilarious investing memes. 💸

One headwind for economic growth in 2025 is the tremendous amount of economic policy uncertainty due to current tariff activity by the executive branch. The Federal Reserve Bank of Atlanta recently shared data about the negative impact of tariffs on planned investment activity (https://lnkd.in/gstDznqp). I’ve reproduced two charts from the data they provided. Thoughts: •The top chart provides responses to the question, “How has uncertainty about tariffs, taxes, government spending, monetary policy, or regulation affected your firm’s plans for hiring/investment over the next 6 months?” Over 40% of respondents stated they would scale back hiring plans and investments in response to economic uncertainty, with less than 5% stating they would expand hiring/investment. This scaling back points to slower growth in the coming months. •The bottom chart shows responses to the question, “What is your firm’s top concern with respect to uncertainty affecting your firm’s hiring/investment plans over the next 6 months?” We clearly see tariffs dominate the conversation, with more than 50 percent of respondents noting tariffs are the top source of uncertainty. Implication: Federal Reserve survey data from N = 961 firms points to tariff-induced uncertainty causing business to scale back hiring and investment plans over the coming months. There is a tremendous body of economic literature detailing the negative effects of economic policy uncertainty in terms of investment. As I’ve stated before, supply chain managers cannot make effective plans around 90-day windows and not knowing if major policy shifts will occur with short notice. Many are anxiously awaiting news on reciprocal tariff levels come July once the 90-day pause on their implementation ends. #supplychain #economics #markets #shipsandshipping #manufacturing #logistics

One of the most concerning developments is the growing divergence between professional and retail investors. Institutional investors have quietly reduced risk, shifting toward defensive sectors and fixed income, while retail traders continue chasing speculative trades. Sentiment surveys confirm this imbalance, showing extreme bullishness among small traders, especially in options markets. With these risks building under the surface, prudent investors should proactively protect their portfolios. No one can predict precisely when the market will correct, but the ingredients for a sharp downturn are clearly in place. Savvy investors should use this period of complacency to reduce risk exposure before the cycle turns. Here are six practical steps investors should consider: ▪️ Rebalancing portfolios to reduce overweight exposure to technology and speculative growth names. ▪️ Increasing cash allocations to provide flexibility during periods of volatility. ▪️ Rotating into more defensive sectors like healthcare, consumer staples, and utilities that tend to outperform during corrections. ▪️ Reducing exposure to leverage by avoiding margin debt and leveraged ETFs. ▪️ Using options prudently—not for gambling, but for protecting portfolios through longer-dated puts on broad market indexes. ▪️ Focusing on companies with strong balance sheets, stable earnings, and reasonable valuations. ▪️ The explosion of zero-day options trading is not a sign of a healthy market. It is a symptom of an unhealthy market increasingly driven by speculation rather than investment discipline. Retail traders have moved from investing to gambling, chasing fast profits while ignoring the mounting risks. Greed is rampant, leverage is extreme, and complacency is near record levels. Markets can remain irrational longer than expected, but history tells us these speculative periods always end in a painful correction. Bull markets do not die quietly; they end with euphoric retail excess followed by painful corrections. Investors who recognize the signs early will avoid the worst of the fallout and be positioned to capitalize when value opportunities return.

For much of the post-GFC period, asset allocation benefitted from unusually supportive conditions: falling rates, ample liquidity, and reliable diversification between stocks and bonds. We believe that environment has changed as cross-asset dispersion has narrowed, starting valuations are less forgiving, and traditional diversification has become less reliable. In this Regime Change environment, incremental performance is driven less by simply owning the ‘right’ asset classes and more by how portfolios are constructed, including sizing, sequencing, and diversification across return drivers, as well as manager selection. To help investors navigate this backdrop, I partnered with Christian Olinger and David McNellis, alongside members of KKR’s Global Macro & Asset Allocation and Solutions teams, to publish updated Capital Market Assumptions across Public and Private Markets over 5-, 10-, and 20-year horizons. Three conclusions stand out: 1. The opportunity set is narrowing. The gap between the best- and worst-performing asset classes has compressed to ~7.4%, down from ~9% several years ago, making portfolio construction and manager selection more important than broad asset class selection alone. 2. Starting points matter more. Public market valuations remain elevated, credit spreads are tight, raising the bar on selectivity and disciplined risk-taking. 3. Resilience matters more. In a regime of higher-trend inflation, persistent fiscal deficits, and elevated geopolitical risk, quality is priced at only a modest premium. Against this backdrop, Private Markets are becoming more central as sources of return, diversification, and inflation resilience. So, our bottom line is that frameworks matter more than forecasts. We at KKR believe investors should rely on forward-looking assumptions around returns, volatility, correlations, and manager dispersion to build portfolios designed for long-term resilience, not precision. Read more at https://go.kkr.com/4a3dUdE

With Interest Rate Cuts Imminent, Where Are Family Offices Looking to Deploy Their Dry Powder in Real Estate? With interest rate cuts on the horizon, Family Offices are strategically positioning themselves to capitalize on new opportunities in the real estate market. Because of patient capital, Family Offices can play the long game. Here’s where they are looking to deploy their dry powder: The ongoing boom in e-commerce has kept demand for logistics and warehousing high. Family Offices are targeting properties in strategic locations near major urban centers and transportation hubs. Lower borrowing costs will make these acquisitions even more attractive, offering solid returns in the long term. The multifamily housing market, particularly in growing urban areas and tech hubs, remains resilient. Family Offices are eyeing value-add opportunities where they can purchase properties that need renovations or improved management. These properties can be acquired at a discount and repositioned for higher rental income, with the added benefit of more affordable financing. As universities continue to attract students back to campus, student housing is seeing strong occupancy rates. Family Offices are looking at properties near expanding campuses and in cities with robust student populations. These investments offer stable returns and can be financed more cheaply with imminent interest rate cuts. The hotel sector, still recovering from the pandemic, offers numerous opportunities for well-capitalized Family Offices. Distressed hotel properties are available at significant discounts. With travel and tourism rebounding, these assets can be renovated and repositioned for future growth. Lower interest rates will facilitate these acquisitions and renovations, enhancing potential returns. Strategies for Success • Focus on Value-Add Investments: Look for properties that require improvements or better management to increase returns. • Strategic Locations: Prioritize investments in urban areas, tech hubs, and near major transportation nodes. • Distressed Assets: Seek out distressed sellers who may be under financial pressure, providing opportunities to buy at below-market prices. • Partnerships and Joint Ventures: Collaborate with experienced operators who have deep sector knowledge to mitigate risks and enhance returns. • Long-Term Perspective: Utilize the inherent advantage of patient capital to weather short-term market fluctuations and capitalize on long-term growth trends. With imminent interest rate cuts, Family Offices can find attractive real estate bargains across various sectors. By focusing on strategic investments and leveraging their long-term perspective, they can uncover opportunities for strong returns and portfolio diversification. Industrial, multifamily, student housing, and hotel properties each offer unique growth potential, making them valuable in today's evolving market.

We’re only human Measures of economic policy uncertainty have eclipsed the pandemic. The largest increases are due to trade policy uncertainty and where the US will end up with regard to tariffs. Why do we care? A top 10 list 1. A “wait and see” mentality emerges. Large, hard to reverse spending decisions by firms and households are put on hold. That acts as a drag or tax on economic activity. 2. Business investment feels the bulk of the effects and contracts. 3. Credit conditions tighten, especially for those most exposed to tariffs, which further constrains investment. Even firms with plans to invest can be hobbled. 4. The banking system becomes less stable. Loan defaults pick up as the economy slows. Consumer delinquencies are already on the rise. 5. Unemployment rises as growth slips to levels that no longer enable the economy to absorb those entering the labor force. What is unknown is whether that weakness will cause a further slowdown in wage growth given the stagflationary effects tariffs. Workers tend to demand compensation for the escalation in the cost of living due to tariffs. 6. Consumer spending skips a beat. Job losses confirm fears and and trigger a larger blow to aggregate incomes and spending. 7. Financial market volatility soars and asset prices fall. People lose retirement savings and feel poorer, companies can't raise money by selling stock and loan losses accelerate. Confidence among consumers and busineses further falters. 8. Monetary policy becomes less effective as fear prevents firms and consumers from reacting to stimulus once it starts. 9. Contagion. Foreign firms and governments perceive the US as an unreliable and less predictable partner. Supply chains are reconfigured to reduce their dependence on US markets. 10. If left unchecked, sustained periods of uncertainty can trigger a breakdown of economic and political systems. Five things can help mitigate and derail bouts of uncertainty from becoming a vicious global cycle: 1. Strong institutions. They create confidence that rules won’t arbitrarily change, and work to counter the “wait and see” behaviors that curb growth. The judiciary plays a key role. 2. Clear communications by the Fed. That and a lack of political interference tempers uncertainty regarding the trajectory of inflation. 3. Automatic fiscal stabilizers, which provide immediate, predictable government response without political gridlock that can worsen a crisis. 4. Well capitalized banks, which prevent larger credit crunches from taking root. 5. International cooperation, which limits contagion. Bottom line Bouts of uncertainty trigger fight or flight reactions. That has resulted in a toxic mix of panic and paralysis. Expect whiplash, as the surge in activity ahead of tariffs borrows from growth later in the year. As for national security, that could be shored up with a targeted & strategic approach to industrial policy. Break bread not ties when possible. Be kind; pay it forward.

It’s 2026. New policies are easing financial burdens, taxes are lower, home loan payments are more manageable, and GST adjustments aim to boost growth. Builders are expecting better sales, experts are predicting higher prices, and the real estate sector is preparing for a fresh surge through 2026 in both residential and commercial properties. Now, you have ₹50 lakhs in hand witnessing all this happening, and trying to figure out the best way to take advantage of the opportunity. In markets like this, individual investors stick to two main ways of getting into real estate. They either buy a small rental property that earns money or invest in shares of a REIT (Real Estate Investment Trust) to access a managed pool of real estate assets. Both options can be effective. But deciding which one matches your finances, time commitment, and ability to handle risk is the bigger question. Owning a rental property follows a more old-school method. You buy a property, rent it out to tenants, and hope the rental income covers costs like the mortgage, property tax, upkeep, and other expenses—all while counting on the property to gain value over time. 👉 Let’s break down the numbers for a property worth ₹50 lakh: •⁠ ⁠Potential to earn through rent at 4% → ₹2 lakh yearly -  •⁠ ⁠Losses when property is vacant → (No. of vacant months × ₹16,700) •⁠ ⁠Agent fees for renting out → ≈ ₹16,700 •⁠ ⁠Regular upkeep and community fees → ₹35,000  •⁠ ⁠Handling paperwork and tenant-related tasks → ₹15,000–20,000/year •⁠ ⁠Occasional repair and maintenance costs → ₹50,000 That ₹2 lakh in income effectively comes to around ₹85,000 a year, bringing the actual return closer to 1.7%. Look at the option of investing in REITs. With REITs, you buy shares in a trust that handles real estate properties like office spaces, malls, or storage units, which make money from rents. You do not need to worry about managing tenants or handling upkeep. Instead, you earn dividends from the income these properties bring in. 👉If you invest ₹50 lakhs in REITs, you might receive: •⁠ ⁠Dividend returns at around 6.5 percent •⁠ ⁠Yearly income of about ₹3.25 lakh •⁠ ⁠Professional property management •⁠ ⁠Diversification across different tenants and properties •⁠ ⁠Easy options to exit whenever needed The differences stand out. Rental properties give you ownership you can see and control, along with the chance for their value to grow. Meanwhile, REITs trade some of that control for ease of use steady returns, variety, and more flexibility. Investing in real estate can be a strong long-term option, especially when approached as part of a well-considered financial plan. In the end, the question isn’t about which one is better. Here’s a comparative look to help you in picking what works best with your financial goals. #PropertyInvestments #RealEstateIndia #REITs #InvestmentChoices #WealthPlanning #PersonalFinance #SmartInvesting #ResidentialRealEstate #CommercialRealEstate

Tail risk-aware investors: 1. Don’t blindly rely on full-sample correlations for portfolio construction 2. Give scenario analysis a meaningful role in asset allocation decisions 3. Use these downside scenarios to estimate the investors’ risk tolerance 4. Use portfolio optimization tools that account directly for left-tail risks 5. Beware of “diversification free lunches” in privately held asset classes 6. Evaluate interest rate risk and its impact on stock-bond diversification 7. Seek asset classes that provide upside “unification”/anti-diversification 8. Consider active risk management strategies: ▪️ Hedges with put options and proxies ▪️ Strategies that embed short positions ▪️ Momentum-based factors or strategies ▪️ Actively-managed absolute return alts ▪️ Managed volatility overlays/strategies ▪️ Strategic or tactical cash allocations [From the book Beyond Diversification. This is not investment advice.]

From Dislocation to Opportunity: The Maturity Wall & How Private Credit Is Stepping In As Banks Pull Back When the Federal Reserve raised rates by over 525 basis points during 2022–2023, the commercial real estate (CRE) sector came under significant pressure. Financing costs surged, and cap rates followed suit. Banks, which traditionally held nearly 50% of all CRE loans on their balance sheets (as shown in the first chart below), started dialing back their exposure. This retrenchment created a liquidity vacuum that Private Credit and the CMBS market have stepped in to fill. Despite the considerable volume of troubled loans still working through the system, the CRE property market is stabilizing, aided by the Federal Reserve’s shift toward a new easing cycle. In short, CRE is healing. However, a massive maturity wall and financing gap looms with over $1.5 trillion in CRE debt maturing by the end of 2026. This represents an unprecedented refinancing challenge. Marathon Asset Management, along with other credit managers equipped with strong CRE lending teams (sourcing, underwriting, structuring, asset management), will be incredibly active in the coming years. Our strategy has been two-fold: 1. In the $1T+ CMBS market: Capitalize on the fallout to acquire securities that are senior to the fulcrum tranche. With 1,600 securitizations and 9,000+ tranches, this highly inefficient and fragmented market offers opportunity for those with differentiated data, proprietary tech, and deep credit/asset-level insight to generate alpha and absolute returns. 2. In the broader CRE loan market (~5x the size of CMBS), my recommendation is to partner with world-class real estate sponsors, owners, and operators to originate loans backed by prime, well-located assets with stable cash flows and growth potential. As the CRE market recalibrates, those with deep real estate credit expertise, flexible capital, and relationship/strategic partnerships will be best positioned to lead this next cycle.

The headlines say investors are nervous. But if you dig deeper, the data tells a more interesting story. February saw $114.8 billion flow into U.S. ETFs. That’s not a sign of retreat. It’s a sign of discipline. In volatile environments, investors aren’t exiting the market—they’re repositioning. And ETFs have become the go-to vehicle to do it. They’re no longer just passive wrappers. They’re tools. Tools to manage sector exposure. Tools to hedge risk. Tools to move with speed, transparency, and scale. Look at Vanguard. $14.5 billion in net flows in one week. $95 billion year-to-date. When markets get complicated, investors don’t want promises—they want precision. Cost matters. Liquidity matters. Simplicity matters. Vanguard delivers all three. Now compare that to what’s happening on the speculative side. Crypto-linked ETPs have recorded $6.4 billion in outflows across five weeks. That’s not just volatility—it’s exhaustion. Investors are walking away from hype and back toward structure. And structure is winning. Buffer ETFs, managed futures, dividend tilts—these are the strategies gaining traction. Not because they’re trendy. But because they give investors exposure with a plan. A way to stay invested without taking blind risk. The pattern is clear. Capital is moving. But it’s moving with intent. Investors are demanding clarity. They want portfolios that can be adapted in real time—without sacrificing control. ETFs give them that power. Whether it’s a sector rotation or a macro hedge, the ETF toolkit is how smart investors are expressing conviction today. Flows used to be a lagging indicator. Now, they’re a map. They show you where the real risk-taking is happening—and where it’s pulling back. So next time you read a market forecast, check the flows first. You might find the story is already being written in real time. What are you seeing in your portfolios? Are flows lining up with your views?