Volatility Isn’t Your Enemy — Emotion Is

Discipline and top ideas—not lukewarm picks—are essential for strong portfolio performance, especially during volatile markets.

Executive Summary

Time, emotional investing, and the power of the narrative shake you out of your gains. Don’t fill your portfolio with lukewarm ideas. Lukewarm ideas, bring lukewarm performance. They won’t hold up when volatility hits. Discipline when investing, plus top ideas, generates top performance.

You Should Always Remember This

Stocks go down as well up. Never expect stocks to move up or down in a straight line. All kinds of news items impact sentiment. On top of that, there are too many algos that will beat you trading in and out of stocks. You can't expect to outperform the algos. Volatility is very challenging, but it’s also perfectly normal. But the answer to all this is to stop trying to come to the market with a view of outsmarting anyone.

Instead, focus on your advantage as a investor: time.

Case in point, I'll always tell you that I do not use stop losses for my investments. By holding onto your stocks for at least 12 months, you can ride out much of the short-term noise and avoid the negative impacts of emotional trading.

This approach allows you to benefit from the long-term growth potential of companies without being whipsawed by daily volatility.

The best strategy for most investors is to adopt a patient, medium-term perspective. Track the free cash flow of the company and ignore the short-term price movements.

Attaching A Story to the Share Price Movement

Most of the time, when a stock sells off, it’s not because anything fundamentally changed—it’s just the market taking a breath.

But that doesn’t stop analysts and commentators from scrambling to explain it with some neat narrative: maybe it’s churn risk, or maybe the new subjects like tariffs —whatever fits.

This is exactly what Nassim Taleb warns about: we’re wired to attach stories to randomness.

In The Black Swan, he talks about the "narrative fallacy"—our tendency to create coherent explanations for events that may simply be noise. Share prices don’t move in straight lines, and volatility isn’t always meaningful.

But the moment a stock dips, the urge to rationalize it kicks in. The real skill is knowing when to ignore the volatility and hold focus on the increasing free cash flow profile.

Emotional Investing

Holding onto stocks for at least 12 months can significantly reduce the negative impacts of emotional trading.

At times, it seems impossible to believe this, but stocks do recover from temporary sell-offs and market downturns.

Here I'm talking about discipline. Having the discipline to stay committed to a 12-month holding period, investors can avoid the stress of daily price fluctuations and the urge to react to share price movements, which are perfectly normal market behavior.

Without the pressure of having to time the market through multiple buy-and-sell decisions, a longer holding period allows the intrinsic value of the company's future free cash flow to surface and in a 12-month period it actually minimizes the medium-term volatility of stocks.

Essentially, keep in mind that lukewarm ideas end up with a lukewarm performance.

Be disciplined in the stocks that you allow into your portfolio, to bring about top ideas only, which drive top performance. So that during the general market turbulence, and your stock gets hit, you can stay with conviction to get to your price target.

Key Takeaway

The key takeaway is that investing isn’t about being the smartest person in the room — it’s about being the most disciplined. You must have the discipline to ignore the daily drama of investing. But at the time, not be fully passive.

Markets will tempt you to react, to explain every move, to trade in and out and to believe you can outmaneuver the volatility. You can't.

When you stick to top ideas and commit to holding for at least 12 months, you give your investments the breathing room they need to work.

Discipline is how you separate yourself from the noise, ride out the volatility, and give your top ideas the time and space to deliver outperformance.