Resources & Investment Updates From Komara Capital Partners

From July 16 to August 5, the S&P 500 experienced a decline of 8.5%, culminating in a sharp 3% drop on August 5. During this period, headlines, clients, and pundits alike were quick to declare the end of the bull market. Market shocks often bring out the naysayers, ready to predict prolonged downturns. As we often say, “Price drives sentiment.” Yet, by the end of August, the volatility was largely forgotten, and the purported reasons behind it faded into the background.

When prices fall, emotions inevitably come into play. Fear, greed, and other feelings can drive investors to act impulsively, often to the detriment of their long-term goals. While much has been written about investor psychology, we want to focus on a different concept in this Investment Update: the importance of speed and timeframe in responding to market changes.

Every investor operates within a unique timeframe aligned with their personal goals, and each has a choice in how quickly to react to market movements. Rather than making a binary decision — being “in” or “out” — we encourage clients to think of their reactions as being on a continuum of speeds. Just as you would respond to the first signs of smoke differently than dancing flames, we think it’s crucial to begin adjusting exposure when early warning signs appear. This approach allows for timely, incremental adjustments without overreacting to initial market fluctuations.

In this month’s Investment Update, we review the market volatility of July and August and discuss how our strategies responded. In this instance, waiting for a persistent trend before taking action proved beneficial. However, it’s important to remember that this won’t always be the case. The key lies in steadfastly adhering to your process, particularly during emotionally charged environments. Over time, consistent discipline in your approach will naturally lead to favorable outcomes, in our view.

But first, here’s a summary of the global asset classes utilized in our portfolios and their exposures for September.

In investing, behavioral biases often amplify investor anxiety. Periods when steady gains are followed by modest declines can be particularly unnerving. This reaction is rooted in behavioral economic principles, such as loss aversion and recency bias, where the fear of losses and recent market performance disproportionately impact decision-making. At Komara Capital Partners, we aim to mitigate these biases through a systematic investment process rooted in trend following.

In our view, trend following helps investors remain disciplined during varied market environments, including minor market corrections, which we define as a “stage 1” or “reversion to the mean” decline when we talk about the anatomy of a bear market. This stage represents a natural and expected part of market behavior, where prices adjust after a significant run-up. Despite the discomfort that such declines may cause, they generally should not prompt immediate concern or reactive decision-making. Instead, our disciplined trend-following strategy often ensures that we stay invested, avoiding the pitfalls of emotional responses or prematurely being “bounced out” of a trend.

Our approach focuses on maintaining a consistent and adaptable plan, allowing us to manage both market highs and lows. By adhering to a systematic process, we seek to navigate market outliers and maintain long-term compounding, even in the face of short-term volatility.

In this month’s Investment Update, we explore the impact of behavioral biases on investment decisions, as well as how our trend-following strategy can help mitigate these effects. We also discuss recent market events, how they fit into the context of the anatomy of a bear market, and our continued focus on preserving compounding through disciplined investing.

But first, here’s a summary of the global asset classes utilized in our portfolios and their exposures for August.