Expect modern markets to trigger you more

The notifications stack up on your devices throughout the day. “Timber.” “Freefall.” Then, within days, “surge” and “rally.” The emojis, the exclamation marks, and the word choices accumulate into something that feels less like information and more like a physiological event.

The unease is part of being human, because long before you’ve processed a headline or a price movement, your body has already begun preparing a response. Whether you let that response drive your decision is, ultimately, the most important thing you’ll do as an investor.

THE VAGUS NERVE AND INVESTING

The reason that reaction registers in your body before your conscious thought catches up comes down to neuroception, a neural process identified by Dr Stephen Porges, a neuroscientist, whose research has shaped how clinicians understand stress and anxiety.

Neuroception acts as your body’s early warning system, wired for survival and running quietly in the background. The process works primarily through the vagus nerve (the longest cranial nerve), which runs from the base of your brain, down through your neck and chest, and into your gut.

When it is functioning well, you can tolerate uncertainty, sit with complexity, and think in time horizons longer than the next hour. Under sustained pressure, that capacity narrows, and you become more reactive, more short-term focused, more inclined to act to end the discomfort rather than think through it.

MODERN FINANCIAL MARKETS ARE, IN A VERY LITERAL SENSE, A PROBLEM FOR YOUR NERVOUS SYSTEM

The stream of alerts and commentary – much of it engineered to capture attention rather than inform decisions – activates your body’s threat response. The reality is that 80% of daily trading in US markets is now driven by participants with no interest in what a business is genuinely worth: index funds mechanically rebalancing to match a benchmark, large hedge funds with automatic sell triggers that fire the moment a position moves against them, and high-frequency algorithms responding in milliseconds to price signals rather than business fundamentals. Share prices can fall sharply on a minor quarterly miss, or surge on a rumour, when nothing meaningful has changed in the underlying business.

At the individual stock level, prices now swing roughly three times more dramatically than they did two decades ago. And your neuroception reads this algorithmic noise, generated at scale and delivered to a screen that is closest to you, as signal.

WHAT YOUR NERVOUS SYSTEM WANTS TO DO NEXT

In Porges’ Polyvagal¹ framework, your nervous system has a resting state which is calm, connected, and capable of thinking across long time horizons – the state that investing requires. When neuroception reads a signal as threat, it moves away from that state toward one of two threat responses: fight or flight (frantic monitoring of your portfolio or selling), or freeze (unable to take any action). The two threat responses pull you away from the first state.

In behavioural finance, this is referred to as loss aversion. Daniel Kahneman and Amos Tversky established that the pain of a loss is roughly twice as powerful as the pleasure of an equivalent gain, which means a 12% drawdown registers with far greater urgency than a 12% gain ever does. Coronation Global Managed, our global balanced fund, has compounded at 7.3% per year in US dollars after all fees since inception – turning $1 million into $2.8 million – while experiencing an average intra-year decline of around 12%. Your nervous system, encountering that drawdown mid-year, registers threat and wants action. The investors who captured those long-term returns were the ones who, somehow, sat with that.

[Chart placeholder: Average intra-year decline vs full-year return – Coronation Global Managed]

WHEN TRAILING OR OUTPERFORMANCE PERIODS BECOME LONGER AND SHARPER

There is a second layer to this. When markets get swept up in a single theme, as they have periodically – from the Nifty Fifty of the 1960s to the dot-com era of the late 1990s to the Magnificent Seven’s dominance in 2023 and 2024 – the index becomes dominated by whatever is going up, regardless of whether the price reflects what the business is actually worth. A fund that owns a broad range of good businesses at reasonable prices will often trail that index, sometimes meaningfully, even while the companies it holds remain fundamentally sound.

This is precisely when neuroception fires most urgently. The portfolio appears to stand still (or lose ground) while the market surges, and every instinct says something has gone wrong. The same forces amplifying short-term volatility have made these trailing stretches longer and sharper than they used to be, and the recoveries sharper too. When prices eventually return to what businesses are genuinely worth, the fund tends to recover strongly, while the crowded trades correct, and the uncomfortable stretches when your fund appears to be missing out are frequently when the most important work is being done by its managers.

THE DISCIPLINE OF A REGULATED RESPONSE

The good news is that how readily your nervous system shifts from threat back to calm is something that can be improved over time through understanding. Equally, the more clearly you understand your fund – its investment philosophy and approach, why you invested in it in the first place (to meet your return and risk objectives), and how it has historically behaved through prior cycles, crises, and subsequent recoveries – the less urgently the alarm fires when short-term noise arrives, and the easier it becomes to sit through the inevitable volatility and alpha cycles.

We think about this at the portfolio level, too. Our job is partly to act as the steadying presence that neuroception makes difficult for any individual investor. We research companies in depth, buy when the price falls below what the business is genuinely worth, and wait while we continue to monitor the facts. We don’t sell because everyone else is selling. That discipline to tolerate discomfort, holding complexity, acting from analysis rather than alarm, is exactly what a calm nervous system makes possible, and what a rattled one makes almost impossible.

There will be stretches when our portfolios trail the index, sometimes significantly, because we haven’t chased whatever the market is currently excited about. Those stretches can feel worse than they used to, because index concentration has intensified and single-stock volatility has genuinely tripled over the past two decades.

The environment is noisier, more often. But if you are in a fund that matches your risk appetite and time horizon, the most important thing you can do right now is stay invested. Volatility is the entry fee the market charges for your participation in long-term rewards, and our diversified global multi-asset portfolios like Coronation Global Managed are built to navigate exactly these conditions.

For a practical guide to building a resilient global portfolio, download our latest Corolab, Investing Offshore, at coronation.com.

¹ A framework describing three autonomic responses to perceived threat: calm engagement, fight or flight, and freeze, and the neural mechanisms that trigger them.

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