But what if this crisis wasn't just a passing storm? What if the storm took hold, as it did in 2008 or 2020, forcing investors to navigate without visibility for months on end? What then? Sell everything and get back on the mattress? Too late. Buy on the downside? Too risky. Wait and cross your fingers? Too naive.

This report is not intended to predict the future - no one can. Rather, it aims to provide a compass, a survival manual for investors to get through falling markets without losing your nerve, or wealth. Some assets resist better than others. Certain strategies can limit the damage, or even take advantage of it. Here the aim is not to run away from the storm, but rather, learn how to weather it. It complements the paper previously published for MarketScreener subscribers: How to reallocate your portfolio in the wake of Trump's tariffs?  

The principle we apply in MarketScreener portfolios

At MarketScreener, we remain positioned in the equity markets because we are long-term investors. This does not prevent us from orienting our portfolios towards more defensive positions that are less exposed to the causes and consequences of crises. So much for the principle. In parallel, we offer a few examples of diversification, and some pitfalls to avoid.

Defensive/qualitative equities: limiting damage while remaining exposed to equity markets

Not all equities sink in a storm. Some resist well, and even grow. These are the so-called "defensive" stocks: they produce goods or services that we can't do without, even in a crisis. Here feature the healthcare, food and utilities sectors, to name the most classic.

A company like Starbucks will continue to sell its coffees and soups, even if the markets collapse. Pfizer will continue to distribute its treatments, whatever the news from Wall Street. These companies often have solid balance sheets, stable profitability and regular dividends. Of course, they're not immune to a downturn. But they fall less, and recover faster.

MarketScreener offers several thematic lists of companies that can adapt to the current environment:

Quality stocks list: this list aims to capture the excess returns of quality stocks. Companies of sufficient size and liquidity that meet qualitative criteria in terms of financial health, business model stability and return on capital are selected. Low-volatility equity list: this strategy consists of beating the markets in contractionary (bearish) phases and rising in line with the market in expansionary (bullish) phases. This may seem counter-intuitive to many investors, but stocks that are less volatile than their peers have historically produced comparable or superior returns. GARP list: companies of sufficient size and liquidity are selected, meeting qualitative criteria relating to financial health, business model stability and return on capital. A valuation filter is then applied to ensure that only companies with reasonable valuations are retained. Dividend Aristocrats: this list aims to identify companies that have increased their dividend payments to shareholders every year for at least 25 years. Dividend Kings: this list identifies companies that have increased their dividend payments to shareholders every year for at least 50 years. Gold: the traditional solution

When the going gets tough, gold shines. In any case, the precious metal rarely adopts the same slopes as risky assets. For centuries, this inert metal has had an astonishing ability to reassure restless minds. It doesn't pay dividends, it doesn't produce anything, it doesn't depend on any state or central bank. Precisely: it is this independence that is its strength. In times of war, banking crises or inflationary pressure, gold becomes (once again) what it has always been: a safe haven.

Today, there are several ways to access this metal. Purists will opt for physical gold: coins, ingots, or bars physically stored (in the false ceiling of the bathroom or in the safe of a bank or depository). There are also ETFs backed by physical gold, which have the advantage of being accessible with fees lower than those of a physical deposit, but the disadvantage of not making the unit holder a direct holder of the metal.

Gold is not an all-risk insurance policy. In the short term, it can fall, especially when interest rates rise.

Gold price evolution between the high and low points of the 2007/2008 crisis

Cash: the weapon of massive patience

In a world obsessed with yield, cash seems to be the poor relation of investment. And yet, it comes into its own when markets plummet and benchmarks shatter. Being liquid means not being trapped by a falling asset. It also means being able to buy cheaply when others are selling in panic.

Being overexposed to cash doesn't necessarily mean having a stockpile of banknotes under your mattress. There are relatively safe ways of offsetting the bite of inflation: passbook accounts, term accounts and secure money market funds. Admittedly, the return is modest, but it's a way to reduce stress and build up a war chest to take advantage of the good weather that comes after the rain.

Investment-grade bonds: a compromise that often works

Some bonds act like a wide-open umbrella. Not all of them: those of over-indebted companies or fragile countries can collapse. But quality sovereign bonds - those of solid countries - or investment-grade corporate bonds, are often more resistant to shocks.

They offer a steady, sometimes modest, but stable return. And when fear prevails, investors take refuge in these securities, which can even drive up their price. The key? Choose appropriate durations (the longer the duration, the higher the interest-rate risk), and avoid bonds that are too sensitive to a sudden rise in interest rates. ETFs don't protect against everything, but they do help to smooth a portfolio's overall performance, particularly when equities sink.

A case in point is the largest US bond ETF, again against the MSCI World, and again during the subprime crisis:

There are a number of ways to position yourself in bonds. Amongst them, ETFs enable you to delegate the monitoring and selection of securities to a management team. It's even possible to invest directly in certain government bonds on the secondary market

Here's how to choose the right bond ETFs:

Geographic and currency diversification: don't put all your eggs in one continent

The stockmarket storm doesn't always hit with the same intensity everywhere. Certain regions and currencies can offer relative shelter. Investing only in your own country, or in a single currency, means exposing yourself to a local shock without a safety net.

Geographic diversification helps spread risk. However, in the event of a global crisis, it can be very complicated to bet on the right horse. ETFs can provide an answer to this problem, but they can also carry an unsuspected share of risk. An ETF exposed to the US market and bought in euros, for example, can see its value drift sharply away from the index it tracks - for better - or for worse.

Arbitrage opportunities can, however, emerge. On April 7, for example, the British bank Barclays advised European investors to increase their exposure to the London market in the event of a continuing crisis linked to customs duties, because the FTSE 100 has some defensive verities and the country only suffers a 10% customs surcharge.

Assets to avoid: banish all excesses

Let's start by stating the obvious: the investments to avoid first and foremost are risky assets within risky assets. During crises, the stocks that plunge the fastest are those with imbalances. Here are a few examples of fragile assets:

  • Companies with high levels of debt. On MarketScreener's Stock Screener, these are companies in the bottom quartile for financial strength (debt, composite rating, etc.). Example: the German company Douglas (parent company of Nocibé) had debt of €2.4bn, very high in relation to its financial performance. The stock has fallen sharply since the beginning of April.
  • Companies that were generously valued due to the hope of a "perpetual blue sky" scenario (high P/E, distant profitability prospects...). For example, Microchip or Affirm in the US, or Sartorius Stedim Biotech in France. These companies have good qualities, but their valuations are exorbitant in times of a sudden slowdown, as their projected growth can no longer absorb the excess valuation.
  • High-yield bonds. These products are riskier than average in normal times. In return, they offer higher yields than conventional bonds. In times of crisis, HY bonds tend to be more volatile. Not for everyone.

To end on a positive note, here's what reasoned investment management can achieve over a 6-year period containing a major crisis (covid in 2020): Warren Buffett and his listed Berkshire Hathaway holding Cathie Wood and her ARK Innovation fund).