Why Markets Are More Resilient Than They Appear

History is full of disruption. War, political upheaval, epidemics, technological change. Open a history book from any era or country, and you’ll see the same forces at play. 

And yet, the broader pattern is clear: we encounter obstacles, we work through them, and we move forward.

My bet is that this continues.

At the onset of COVID, markets fell more than 30%. A global pandemic and widespread shutdowns led many investors to take a deeply pessimistic view of corporate profitability.

But even while the pandemic was still unfolding, markets recovered. 

Why?

Because the value of a business is not determined by what it earns this year, but by what it will earn over many years.

The long-term earning power of publicly-traded businesses was not permanently impaired, and valuations reflected that. 

There will always be short-term shocks that disrupt earnings. Some periods will look worse than expected. Some will look downright broken.

But zoom out, and a different pattern appears. Earnings grow. Cash flows rise. The baseline level of business value moves higher over time.

So when downturns come, they tend to occur from a higher starting point, and often bottom at levels above the previous cycle.

That is the engine behind long-term returns.

None of this makes markets smooth. Declines will happen. Uncertainty will return. There will always be a convincing story for why things are different this time.

But while short-term disruptions dominate attention, they tend to be temporary. Beneath the noise of current events and volatility, the underlying value of businesses continues to grow.

That’s the part that’s easy to overlook, and where long-term returns are made.