Investor fear in early 2025 led to ‘costly lessons’, CFA expert warns

Investors who succumbed to the “temptation to sell” during the market turbulence of early 2025 likely learned a costly lesson about the dangers of market timing, according to Kyriacos Inios, Secretary of CFA Society Cyprus.

Reflecting on the sense of unease that dominated markets in April last year, when tariff war rhetoric was pervasive and prices were sliding daily, Inios notes that for many, the urge to exit the market felt almost unavoidable.

“If you caught yourself thinking, ‘Maybe I should just sell for now until things settle’, you were not alone,” Inios says, adding that numerous anxious investors contacted the society during that period.

However, he argues that 2025 offered a stark reminder that “the greatest risk to our capital is not always the economy, but our own reaction to it.”

Walking through the sequence of events, Inios explains that during the first quarter of 2025, markets followed a steady downward path as trade war fears intensified.

By early April, market psychology had hit a nadir, with news coverage becoming “almost exclusively negative,” a sentiment reflected in sharp sell-offs.

On April 3, the S&P 500 fell by 4.8 per cent, followed by a further 6 per cent drop the next day.

“The turning point came on April 9, 2025,” Inios recalls, noting that the announcement of a “90-day tariff pause” reversed sentiment abruptly.

“In just a single day, the S&P 500 recorded a rise close to 10 per cent,” he says.

Inios stresses that these events were not random, but rather reinforce a paradoxical rule of investing: the best days in the stock market “almost always occur during bear markets, when pessimism is at its peak.”

He points to historical precedents, such as October 28, 2008, when the market rose 10.8 per cent during the global financial crisis, and the surges of March 2020 amid the Covid-19 pandemic.

“Those who sold just before these dates, in an effort to protect themselves, missed some of the strongest returns of the decade,” Inios says.

Citing data from J.P. Morgan Asset Management, he explains that a $10,000 investment in the S&P 500 over 20 years would have grown to roughly $72,000 if left untouched, but missing just the ten best days would have reduced that final value to approximately $33,000.

“This happens because the best days often occur within two weeks of the worst days,” he explains, adding that selling to avoid further losses “almost mathematically guarantees” missing the subsequent recovery.

Drawing on behavioural finance, Inios notes that the pain of a portfolio decline is “roughly twice as intense” as the pleasure of a rise, an instinct known as loss aversion that often drives investors to sell “at the bottom, just before a rebound.”

To combat this, he suggests that proper asset allocation is the first line of defence.

“The rules are clear,” Inios says. “Funds needed within zero to twelve months should be held in cash or cash equivalents.”

Capital required over a one-to-five-year horizon belongs in stable assets like bonds, while “only capital with a time horizon of five years or more should be exposed to the volatility of the stock market.”

He describes equities as “a vehicle for long-term wealth, not a bank account for next month’s rent.”

Beyond allocation, he emphasises that understanding the underlying value of a business provides an “anchor” during volatile periods.

“Investors who focus on the long-term drivers of value, rather than short-term price movements, are far less likely to panic,” he adds.

Looking ahead, Inios warns that fear will inevitably resurface, “maybe in 2026, maybe later.”

“Recovery often comes suddenly and without warning,” he concludes. “Over time, markets tend to reward patience, discipline and a clear strategy, rather than impulsive reactions to the latest news.”