As investors, it is critical to understand the market environment we are operating in. Clarity about the landscape determines how well we navigate it.
Some markets are secular in nature, showing a largely one-way movement in valuations. Secular bull markets lift most stocks, making almost every investor look successful. These are easy phases to succeed in. Secular bear markets, on the other hand, compress valuations across the board, making even skilled investors appear ordinary.
We witnessed a secular bull run from 2020 to 2024. Investing felt easy and most investors delivered respectable returns.
But 2025 and 2026 have set the stage for a different kind of market.
The sideways shift
The current phase is marked by sideways movement, extended volatility and frequent reversals. Many investors are struggling to rediscover the secret sauce that seemed effortless during the bull run.
In secular bull markets, most portfolios perform well. Those with a few large winners deliver outperformance.
In sideways markets, however, most portfolios struggle. A handful of portfolios with one or two big stock winners generate outperformance — and that outperformance is loudly celebrated. Market participants obsess over monthly signals, praise the winners and criticise the laggards, constantly searching for what worked.
In such phases, ace stock pickers tend to look smarter than disciplined portfolio builders.
Stock picker vs portfolio builder
A stock-picking approach seeks the next big winner. It often focuses on where to bet big, sometimes underplaying downside risk — much like a pinch hitter in a T20 match. The objective is to score big, not necessarily to preserve the wicket.
But this all-or-nothing style is rarely suitable for a fund manager. Investors expect upside participation without sharp drawdowns.
Most seasoned professional managers avoid a pinch-hitter strategy in sideways markets — not because they lack skill, but because they understand how temporary volatility and drawdowns can damage near-term performance and investor morale.
Sideways markets are not a “power play” phase.
Yet, there will always be swashbuckling managers eager to prove they can invest aggressively in all conditions.
As investors, we must ask ourselves: what risks are we comfortable with? How do we want to experience difficult phases? What kind of volatility can we tolerate?
These answers should guide our choice of manager during sideways markets.
Getting this right matters more than we imagine — because we do not know what follows a sideways phase.
What if a bear market follows?
It is tempting to assume a bull market will follow. That assumption could be wrong.
If a bear market follows a sideways phase, aggressively positioned portfolios could be severely damaged. Whether you are a DIY investor or allocating to a fund manager, your portfolio positioning must align with your temperament and risk appetite.
Fund managers, too, must be circumspect and selectively aggressive during sideways markets to deliver a durable long-term experience.
Markets driven by daily NAV comparisons, quartile rankings and flows chasing recent returns create pressure. Investors chase performance; managers take higher risks to deliver it.
This dynamic increases vulnerability to sharp downside moves.
“Cowboy-style” investing during volatile phases often gets brutally punished in a downturn. Meanwhile, disciplined and seemingly “boring” managers suddenly look respectable. Perception shifts rapidly when markets turn.
Prepare for downturns
Investors tend to prepare more eagerly for upturns than downturns. Experience teaches that preparing for declines is equally important.
As macroeconomic conditions appear significantly weaker than at the start of 2026, investors must align portfolios with changing realities.
Risk-taking should be measured, selective and specific.
Portfolios must prioritize safety over aggression. Managers need to maintain an adequately defensive stance as valuations realign and moderate.
Shyam Sekhar is chief ideator and founder of ithought Financial Consulting LLP.