Important Information
This information is provided for general educational purposes only without regard to your particular investment needs. This material, including any attachments or hyperlinks, should not be taken as investment or tax advice of any kind whatsoever (whether impartial or otherwise) on which you may rely for your investment decisions, nor be construed as an offer, solicitation or recommendation for any investment strategy, product or service. Investors should consult their financial and tax adviser before making investments in order to determine the appropriateness of any investment discussed herein.
Material authored by any particular Artisan Partners individual or team represents their own views and opinions, which may or may not reflect the views and opinions of Artisan Partners, including its autonomous investment teams or associates. Statements are based on current market conditions and other factors, which are as of the date indicated and are subject to change without notice. While this information is believed to be reliable, there is no guarantee to the accuracy or completeness of any statement in the discussion.
All investments are subject to risk, which includes potential loss of principal. Past performance is not indicative of future results.
This material may reference index or other information that is subject to copyright by its respective service provider, including the following: MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used to create indices or financial products. This report is not approved or produced by MSCI. Frank Russell Company ("Russell") is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/or Russell ratings or underlying data and no party may rely on any Russell Indexes and/or Russell ratings and/or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell's express written consent. Russell does not promote, sponsor or endorse the content of this communication. The S&P 500 and S&P UBS Leveraged Loan Indices are products of S&P Dow Jones Indices LLC (“S&P DJI”) and/or its affiliates and has been licensed for use. Copyright © 2025 S&P Dow Jones Indices LLC, a division of S&P Global, Inc. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. S&P® is a registered trademark of S&P Global and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). None of S&P DJI, Dow Jones, their affiliates or third party licensors makes any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and none shall have any liability for any errors, omissions, or interruptions of any index or the data included therein. Information has been obtained from sources believed to be reliable but J.P. Morgan does not warrant its completeness or accuracy. The Index is used with permission. The Index may not be copied, used, or distributed without J.P. Morgan's prior written approval. Copyright 2025, J.P. Morgan Chase & Co. All rights reserved. Source ICE Data Indices, LLC, used with permission. Source ICE Data Indices, LLC is used with permission. ICE® is a registered trademark of ICE Data Indices, LLC or its affiliates and BofA® is a registered trademark of Bank of America Corporation licensed by Bank of America Corporation and its affiliates ("BofA"), and may not be used without BofA's prior written approval. The index data referenced herein is the property of ICE Data Indices, LLC, its affiliates (“ICE Data”) and/or its third party suppliers and, along with the ICE BofA trademarks, has been licensed for use by Artisan Partners Limited Partnership. ICE Data and its Third Party Suppliers accept no liability in connection with the use of such index data or marks. See www.artisanpartners.com/ice-data.html for a full copy of the Disclaimer. The index(es) are unmanaged; include net reinvested dividends; do not reflect fees or expenses; and are not available for direct investment.
© 2025 Artisan Partners. All rights reserved.
Investing Amid a Rising Range of Outcomes
The Q1 market selloff was broad-based and intense, fueled by deep uncertainty about the pandemic’s true threat. In our view, the market did little to discriminate among individual firms, preferring to re-rate sectors given the short timeframe, rapid price action and lack of information.
Of course, our process is built to capitalize on market dislocations, when fear and uncertainty dominate, as is the case in our current environment. But we are also vigilantly risk-aware. This is where a thoughtful and repeatable process makes all the difference.
Clearly, the markets are navigating a series of risks for which history is a poor guide. We can’t reasonably draw on prior experiences because there are none. Without a reliable empirical guide, we are operating with a high level of intellectual honesty about what we do know, about what we might not know, about what we can know, and about what we can’t know all that well. Working within our process, we focus on understanding the range of potential outcomes and look for opportunities where the asking price today tilts in our favor. And currently, the range of outcomes may never have been wider in our time as professional investors. Not only is the range wider, the left-tail of the distribution—the one with the worst outcomes—is fatter than usual; the right-tail of the distribution—the one with the best outcomes—may not be similarly wide.
Dispersion and skewness are useful statistical concepts, but like any tool, only as good as the skill and judgment of the analyst. These objective tools can help to push emotion and cognitive biases aside, but we don’t approach the opportunity set with a math-explains-all approach. Rather, we use statistics to amplify our judgment. Our probabilistic thinking is one prime example.
Investing is not gambling, but they share some common traits. Consider a pair of fair, six-sided dice. If you were offered a chance to wager on the outcome of a roll of those dice, you absolutely must first know how many outcomes are possible: 11 with 36 possible combinations. We think exhaustively about the paths and permutations an out-of-favor stock can take. But what makes the current environment particularly challenging is that the game isn’t with two dice. Now, it’s more like a three-dice game, with 16 outcomes, across 216 combinations.
Going to 16 outcomes from 11 certainly raises the level of difficulty. When the range of outcomes widens even modestly, the possible combinations expand exponentially. This intuition is simple, but powerful. If you focus only on the range of outcomes and ignore the complexity in the combinations of paths that get you there, then you could be left bearing unintended risks. Consider how a company not only needs resilience in this economic downturn, its survival may depend on bridging a liquidity gap, which means navigating a dysfunctional financing market where central banks are now the activist investor. Such a path is complex and fraught with uncertainty. Given those conditions, a risk-aware value investor must recognize this and adjust valuations and expectations accordingly.
Our process relies on investing with a margin of safety. Those safety elements aren’t foolproof in times like these or under these conditions, but they are intellectually honest, based on sound principals and time-tested.
Contact the Editorial Staff
Have a question or comment? We welcome your feedback. Comments will not be made public, but will be read by a member of our editorial staff.
Thank you for your question or comment.