War, Volatility and Opportunity: Why Market Drawdowns Can Be the Best Entry Points for Long-Term Investors

Geopolitical conflict is one of the fastest ways to trigger market volatility. The recent escalation involving Iran has again reminded investors how quickly sentiment can swing when uncertainty rises.

History shows that when war headlines dominate the news cycle, investors often react by selling first and asking questions later. Prices fall rapidly, volatility spikes, and the market narrative becomes dominated by risk.

Yet paradoxically, these moments of fear have often provided some of the best long-term entry points for disciplined investors.

Markets and War: A Consistent Historical Pattern

Markets dislike uncertainty more than almost anything else. When conflict breaks out, investors initially struggle to price the potential economic consequences—energy shocks, trade disruptions, and geopolitical escalation.

But history shows that markets tend to recover much faster than expected once the initial shock passes.

Examples across modern history illustrate the pattern:

• The Gulf War in 1990 triggered a rapid market sell-off, followed by a powerful recovery within months.
• The Iraq War in 2003 saw equities rally strongly after the initial uncertainty lifted.
• Even during the Russia-Ukraine invasion in 2022, global equities recovered quickly once markets began to understand the economic implications.

In many cases, the best buying opportunities occur when uncertainty is highest.

Volatility Creates Opportunity

Periods of geopolitical stress rarely affect all companies equally. Often, high-quality businesses become temporarily mispriced simply because investors are reducing overall exposure.

This creates opportunities for active managers who are willing to remain disciplined when others are reacting emotionally.

During periods of market stress we often see:

• Forced selling from institutions managing risk limits
• Retail investors reacting to negative headlines
• Short-term traders amplifying volatility

These dynamics can push strong businesses well below their intrinsic value.

For investors able to look beyond the headlines, this volatility can create unusually attractive entry points.

The Behavioural Advantage

One of the most powerful edges in investing is behavioural.

When markets fall sharply, fear often dominates decision-making. Investors feel compelled to “do something” even when the long-term fundamentals of businesses have not changed.

However, long-term investment returns are frequently driven by the ability to remain rational when others are emotional.

Historically, investors who consistently added to positions during periods of market stress have often been rewarded over time.

Concentration Risk Is Rising

Another factor increasing the potential opportunity during market volatility is the extreme concentration currently present in major equity indices.

Over the past decade, the weight of the largest companies in the S&P 500 has risen dramatically. The top ten companies now represent close to 40% of the entire index, compared with roughly 20% in 2010

This concentration means that passive investors are increasingly exposed to a small number of very large companies.

Periods of volatility often create opportunities outside those dominant index names, particularly among companies undergoing corporate change, restructuring, or spin-offs.

Finding Opportunity in Corporate Change

Corporate spin-offs, restructurings and special situations are an area where volatility can create particularly compelling opportunities.

When companies separate divisions or restructure their businesses, the market often struggles to price the newly independent entity correctly. This can lead to temporary mispricing, particularly when combined with broader market volatility.

For active managers focused on these types of opportunities, periods of geopolitical uncertainty can actually accelerate the appearance of attractive investments.

A Case for Long-Term Discipline

While geopolitical conflicts understandably create concern for investors, history suggests that reacting emotionally to market drawdowns can be costly.

Markets are forward-looking. By the time the news becomes less uncertain, prices have often already recovered.

Instead, maintaining a disciplined investment process and focusing on long-term fundamentals can allow investors to take advantage of opportunities created by short-term volatility.

Performance Snapshot

Since inception twelve months ago, the Sharpbridge Equities Fund has delivered a net return of approximately 70%, compared with roughly 8% for the MSCI World Index over the same period.

While past performance is not a guarantee of future returns, the period has included multiple episodes of market volatility—demonstrating the importance of maintaining a disciplined process during uncertain conditions.

Final Thoughts

Geopolitical events will always create periods of market instability. But for investors focused on long-term value rather than short-term headlines, these moments can also provide compelling opportunities.

Volatility, while uncomfortable, is often the price investors must pay for superior long-term returns.

The key question during periods of market stress is not whether volatility will occur—but whether investors are prepared to take advantage of it when it does.

Disclaimer: This article is prepared by Jarrad Stuart (Portfolio Manager of the Sharpbridge Equities Fund.). It is for educational purposes only. While all reasonable care has been taken by the author in the preparation of this information, the author and InvestmentMarkets (Aust) Pty. Ltd. as publisher take no responsibility for any actions taken based on information contained herein or for any errors or omissions within it. Interested parties should seek independent professional advice prior to acting on any information presented. Please note past performance is not a reliable indicator of future performance.