Warren Buffett says, “Be fearful when others are greedy and greedy when others are fearful.” Today, people are fearful.

Investment markets are terrible as I write this. This doesn’t happen often, but it happens, though everyone says this time is different. There has never been a United States president such as Donald Trump before, and he’s doing the things that Trump does.

Of course, they are correct that the reason for this market drop is different than previous market declines. After all, no two declines are exactly the same.

But here’s what is the same. The stock market has a foundation based on the human emotions of greed and fear. This is the reason why great investors such as Buffett say to be greedy when others are fearful. To highlight what this means, let’s look at some other times when the investment markets were terrible.

In March 2020, during the early days of COVID-19, we pulled data related to some historical times when the S&P 500 was down 15 per cent from a peak. We focused on the times it had dropped 15 per cent in 30 days or less; at the time, this had happened eight times in 70 years. In today’s scenario, the S&P 500 is down more than 16 per cent from its peak in February.

This shows what happened to the market in the period after a 15 per cent drop:

• Next 20 trading days: the average return was nine per cent and seven of the eight times were positive.
• Next 40 trading days: the average return was 12.3 per cent and all eight times were positive.
• Next 60 trading days: the average return was 10.6 per cent and seven of the eight times were positive.
• Next 260 trading days: the average return was 28.7 per cent and seven of the eight times were positive.
• Next 720 trading days: the average cumulative return was 50.1 per cent and all times were positive.

Remember that human emotions of fear and greed never change. That is why the numbers above are likely to happen again.

If we don’t look at history, but just today’s unique scenario, there are a few reasons why things will likely look a lot better in the markets in the months ahead.

The five-year U.S. bond yield has dropped to 3.65 per cent from 4.1 per cent in a month. This increases the likelihood that U.S. interest rates will fall, which is generally supportive of the stock market.

Trump’s negotiating style is to start by blowing things up, demanding the moon and then retreating from there. The “Liberation Day” of massive U.S. tariffs on April 2 was the equivalent of him blowing things up.

Trump is not a patient and strategic man. Most who have worked with him in the past describe him as impulsive and transactional. He has shown that he doesn’t care what happens outside the U.S., and he doesn’t seem to care about the so-called pure Democrat states, but he does care about Republican and near-Republican states. He cares about their governors and senators, and he cares about the votes of those residents.

Those groups will be putting more and more pressure on Trump to pull back on his tariffs, and I suspect he will do just that.

History and dispassionate analysis tend to be good guides for investing. Michael Cembalest, who leads the market and investment strategy team at J.P. Morgan Asset Management, recently underscored this point:

“The stock market is unique — it cannot be indicted, arrested or deported; it cannot be intimidated, threatened or bullied; it has no gender, ethnicity or religion; it cannot be fired, furloughed or defunded; it cannot be primaried before the next midterm elections and it cannot be seized, nationalized or invaded. It’s the ultimate voting machine, reflecting prospects for earnings growth, stability, liquidity, inflation, taxation and predictable rule of law.”

This reminds me of one of the reasons I like the stock market: the market will ultimately settle at where it is supposed to be. In the short term, big swings are simply opportunities along the way. It just might be time to be greedy.

Ted Rechtshaffen, MBA, CFP, CIM, is president, portfolio manager and financial planner at TriDelta Private Wealth, a boutique wealth management firm focusing on investment counselling and high-net-worth financial planning. You can reach TriDelta at www.tridelta.ca