Most people don’t lose money in a downturn because the market fell. They lose money because they made a decision during the fall that they would never have made calmly on a quiet Tuesday. That’s the part nobody warns you about. Volatility doesn’t just move prices — it moves people. And if there’s one idea at the center of the Garrett O’Rourke investing approach, it’s that the volatility itself is rarely the real problem. The problem is what it talks you into.
I’ve spent my career on the operating side of business — sales, business development, running call centers, managing teams. That background shapes how I look at public markets more than anything I’ve read. When you’ve run an operation, you know what a bad week actually looks like from the inside. You also know how often a bad week means nothing at all.
What running an operation teaches you about noisy numbers
Run a call center for any length of time and you learn quickly that daily numbers lie. Call volume drops on a Monday. Conversion dips for two days. A rep who’s been steady for a year has a terrible morning. If you react to every one of those data points, you’ll be rewriting your scripts, reassigning your floor and rebuilding your comp plan every week — and you’ll destroy the thing you were trying to improve.
The operators who do well are the ones who know which numbers are signal and which are noise. You look at the month. You look at the quarter. You look at whether the underlying process is sound. The daily figure is information, not instruction.
Public markets work the same way, only louder. A stock quote is one number, updated constantly, delivered with urgency. It feels like instruction. Most of the time it’s noise. In my experience, the discipline you build watching a sales floor through a slow stretch transfers almost perfectly to watching a portfolio through a correction.
Volatility is not the same thing as risk
This distinction matters more than almost anything else. Volatility is how much the quoted price moves. Risk is the chance that you permanently lose money you needed.
Those two things overlap sometimes, but they are not the same. A business with steady demand, a real competitive position and a manageable balance sheet can have its share price cut in half in a panic. The price got more volatile. Did the business get riskier? Maybe, maybe not — that’s a separate question, and it’s the only one worth answering.
Meanwhile, real risk often shows up with no volatility at all. Too much leverage. A customer concentration problem. A business that only works if a specific condition holds. Those things sit quietly for years, and then they don’t.
As an investor, I try to spend my worrying on the things that could permanently impair capital, not on the things that merely fluctuate. It’s not a comfortable discipline. Fluctuation is what you can see, so that’s where attention naturally goes.
Why volatility breaks people
There are a few reasons intelligent people make poor decisions when markets drop, and none of them are about intelligence.
- The position was too big. Most panic is a sizing problem in disguise. If a 30% decline in one holding threatens your sleep or your obligations, the issue wasn’t the decline.
- There was no plan written down. Conviction you never articulated isn’t conviction. It’s a mood, and moods change with the tape.
- The money had a job. Capital you’ll need in eighteen months shouldn’t be exposed to a market that can be irrational for thirty-six.
- Ownership never actually felt like ownership. If you bought a ticker, you’ll sell a ticker. If you bought a piece of a business, you’ll ask about the business first.
Running a business teaches you that most crises are really preparation failures with better lighting. The same is true here. The people who handle a downturn well usually made their key decisions long before it started.
Garrett O’Rourke investing principles for turbulent stretches
None of what follows is complicated, and none of it is advice for your situation. It’s simply how I’ve come to think about it.
Decide what you own before you need to defend it
Before buying, I want to be able to explain in plain language what the business does, who pays it, why they keep paying it, and what would have to go wrong for that to stop. If I can’t do that in a couple of sentences without jargon, I don’t understand it well enough to hold it through a 25% drawdown — and I will eventually face one.
Size positions for the bad scenario, not the good one
Everyone models the upside. Fewer people honestly model the version where they’re wrong. When you’re responsible for a team, you learn to plan for the month where the pipeline dries up, because that month always comes. Position sizing is the same exercise. Risk before reward — not as a slogan, as an order of operations.
Keep liquidity so you’re never a forced seller
The single worst position to be in is having to sell something good at a bad price because a bill came due. Cash gets criticized for earning nothing. What it actually earns is optionality and the ability to stay patient. Over the years I’ve come to view a liquidity cushion as part of the strategy rather than a drag on it.
Separate the price from the value, deliberately
When a holding drops sharply, I try to ask one question first: has anything changed about the business, or has something changed about how people feel about the business? Earnings power, competitive position, balance sheet, management behavior — those are business facts. Sentiment is not. Both are real, but only one should drive a decision.
Slow down the clock
A rule I find useful: no decision made during the first hours of a scary headline. Write down what you would do, then wait. If the reasoning still holds in a day or two, act on it. Most of the time it doesn’t, and the waiting saved you money.
Judge the process, not the last outcome
You can make a good decision and get a bad result. You can also be reckless and get lucky, which is far more dangerous because it teaches the wrong lesson. One thing I’ve learned running sales organizations is that you coach the process, because the process is what repeats.
Independent conviction is the hard part
Everything above is straightforward on paper. What makes it difficult is that during a sharp decline you are surrounded by confident people saying the opposite of what your analysis says. Some of them are on television. Some of them are people you respect.
Independent conviction isn’t stubbornness. It’s having done enough of your own work that you know exactly what would change your mind — and knowing that a falling price, by itself, isn’t it. If new facts arrive about the business, update. If only the mood changed, sit still.
Miami Beach is a good place to learn this, honestly. South Florida runs on optimism and momentum, and both are useful right up until the point where they replace thinking. The same discipline that keeps you grounded in a hot local market keeps you grounded in a hot stock market.
The broader principle
Patience is not passivity. It’s the willingness to let a sound decision have enough time to be proven right or wrong on its merits, instead of on this week’s price action. Every serious business I’ve been part of grew that way — steady execution, consistent standards, a tolerance for stretches where the effort was invisible in the numbers. Investing has never felt different to me. The compounding just happens somewhere you can watch it fluctuate in real time, which makes it harder, not easier.
Volatility will keep coming. It is the cost of access to the long-term returns that ownership can provide, and it’s a cost you pay in temperament rather than dollars. The investors I admire aren’t the ones who predicted the drop. They’re the ones who were already positioned so that the drop didn’t require them to do anything at all.
This reflects my personal perspective as a private investor and business operator. It isn’t individualized financial advice, and it isn’t a recommendation to buy or sell any security. Your circumstances, time horizon and risk tolerance are yours alone — do your own work, and speak with a qualified professional about your specific situation.
Photo by Anne Nygård on Unsplash