Sea voyages teach us that calm waters are the exception, not the rule. The forecast may appear reassuring, but conditions change quickly. The mistake is thinking that survival depends on predicting the weather. It doesn’t; it depends on preparation, balance and knowing which instruments still work when visibility fades – much like investing. Borrowing from insights by portfolio manager Sean Munsie and head of Direct and Private Clients Nomi Bodlani, Daniella Bergman summarises some of the key takeouts from a recent Allan Gray investment update.
Uncertainty today is unusually broad‑based. The seas feel rougher than in previous periods, the fog thicker, the horizon harder to read. Investors are simultaneously grappling with geopolitical tension, shaky power dynamics, questions over the US dollar’s entrenched role, shifting trade policy, persistent fiscal deficits and oil price shocks – and on top of all of this, the rapid development of AI. Recent years have shown how fragile prevailing assumptions can be.
Investor questions and concerns understandingly revolve around this uncertainty: Am I positioned correctly? Will I be okay? Should I be doing something different right now? The emotional discomfort is real – but it is not new. Like the ocean, complex markets weather storms time and again, but careful navigation is required.
Icebergs: The risks below the water line
What sits below the waterline is often more important than what captures attention above it. Similarly, investment outcomes are rarely driven by what investors expect. Much attention is paid to daily news flow, with investors investing on hype and disinvesting based on fear, often with not enough regard for long-term risks and underlying fundamentals. Of course, one shouldn’t ignore the obvious risks, but deep research can reveal less obvious perils – and also uncover opportunities.
Every five‑year period over the past 25 years has carried its own defining shock – 9/11, the global financial crisis, Nenegate, COVID‑19, inflation surges and interest rate hikes. Each felt decisive at the time, and investors were tempted to believe the old rules no longer applied. Yet when we look beneath the surface, the icebergs look familiar. Volatility, uncertainty, drawdown. These are not anomalies; they are structural features of equity investing.
However, the real iceberg is not volatility itself – but the failure to plan for it. Investors who build portfolios assuming smooth seas are the ones most likely to run aground.
Wind: Free energy – but it can shift suddenly
Over long periods, equities remain the strongest generator of real returns, comfortably outpacing bonds and cash. You could say that equities are the prevailing wind that powers long‑term wealth creation. But wind is only useful if you stay invested long enough to catch it.
R100 000 invested in the Allan Gray Balanced Fund between 1 January 2001 and 31 December 2025 grew to roughly R2.8 million. Missing out on just the top two months, the outcome drops materially to R2.3 million. Missing out on the top five months, and nearly a million rand disappears from the result (R1.9 million).
Wind does not arrive on schedule. It can blow strongest immediately after a storm has broken masts and rattled nerves. Investors who lower their sails during periods of fear may feel safer, but they sacrifice the very force that drives long‑term progress.
Ballast: Slows the ship, but aids stability
Ballast – heavy material or water tanks that keep a ship steady – is rarely celebrated. In calm conditions, it feels like unnecessary drag. But when waves strike from the side, it is the difference between stability and capsizing. There is a complex interplay between moving forward and holding steady.
Likewise, with the management of risk and return in portfolio construction. Our investment philosophy of only investing in assets where there is a significant margin of safety built in – i.e. a significant gap between the share price and what we believe the share is worth – and our obsession with trying to avoid the risk of permanent capital loss, means that there is ballast built into our approach.
Looking specifically at a fund example: The Allan Gray Balanced Fund balances income generation, capital growth and risk of loss using a mixed selection of assets, including fixed income assets and cash, which provide ballast in the portfolio, while equities provide the wind, as described above.
Our Balanced Fund tends to outperform peers during weaker market periods, and generally performs in line with peers when markets are strong. The compounding effect of losing less than others during down markets is powerful over time.
A simple theoretical example makes this clear: If the market falls 50%, a portfolio that also falls 50% requires a 100% gain just to break even. A portfolio cushioned by ballast that falls less requires a far smaller recovery to return to its prior level – and therefore ends the cycle in a stronger position after rebounds. Protecting the downside takes care of the upside.
Ballast does not eliminate storms. It ensures that you are still floating when the weather turns.
Mutiny: The storm isn’t the test; staying the course is
Mutiny on a ship sees sailors rebelling against the captain; in investing, it arises when typical behaviour pitfalls – fear, impatience and regret – overpower discipline. This tends to happen during market volatility. While the ride can feel rough, buckling in pays off, and time improves the odds:
Equity markets delivered positive, inflation-beating returns in 74% of one‑year periods, 96% of five‑year periods, and 100% of 10‑year periods over the last 25 years (including only starting points within the measuring period e.g., the one-year periods can only be measured from 1 Jan 2002).
Our research reveals that investors who remain invested through down markets consistently fare better than those who jump ship at precisely the wrong moments. Best and worst days tend to cluster together. Trying to avoid the worst days almost guarantees missing out on the best ones too.
The storm is not the character test. Staying at your post is.
The lighthouse: It does not promise calm seas; it promises fewer shipwrecks
In the context of investing, your goal is your lighthouse as it determines your time horizon, asset allocation and fund selection. These are the navigational lights that should guide your decision-making and help you avoid the most common behavioural mistakes.
From an investment management perspective, our investment philosophy is our lighthouse, and has remained the same for more than 50 years. We adapt our investment process in response to changing technology and changing times. We are long-term oriented, bottom-up investors. We are valuation-driven and contrarian in nature. We use deep fundamental research to determine the true underlying value of an asset, and this guides when we buy and sell.
Learning to sail by what matters
We are living through very uncertain times, compounded by war, changing power dynamics and AI. But what actually matters when it comes to investing has not changed: embrace growth assets with eyes open, respect volatility rather than fear it, carry ballast, extend your time horizon, and resist mutiny when emotions peak.
Successful investors are not those who predict the weather best, but those who build well-diversified portfolios – vessels designed with different conditions in mind and are strong enough to reach the destination – no matter how unsettled the seas become.