In Times of Market Turmoil, Look For Basketballs Under Water
March 5, 2025
10 min read
In Times of Market Turmoil, Look for Basketballs Under Water
Market turmoil creates opportunities. Look for stocks with relative strength — the «basketballs under water». They snap upward as soon as pressure eases. Our original analysis for The Market by NZZ — plus the extended investor's view for arvy readers.
In 30 seconds — the core thesis
- Market turmoil creates opportunities — when the broad market falls, all stocks fall with it. But not equally. Stocks that hold up better than their indices show relative strength.
- Basketballs under water is the metaphorical description: stocks short-term pressed by general selling pressure, but with potential to snap upward with full force as soon as pressure eases.
- Relative strength is the quality marker in corrections. While most investors panic-sell, it's the phase when disciplined investors do their homework and identify the champions of the next market phase.
The original analysis — the opening
The US stock market is in turmoil, and pessimistic sentiment is noticeably increasing. Since many market participants act procyclically, they amplify the sell-off additionally.
But instead of panicking, prudent investors should now roll up their sleeves, think strategically, and do their homework. Now is the time to actively search for opportunities: stocks in your own portfolio suitable for adding to, as well as new investment opportunities. Particularly interesting are companies that demonstrate relative strength in the midst of general market weakness — those that develop more robustly than their respective indices despite the turbulent environment.
Such stocks are short-term burdened by market conditions but have the potential for significant recovery once selling pressure eases. Relative strength is the decisive quality marker of a promising stock in this market phase — a value worth owning.
In turbulent times I call these stocks «basketballs under water»: they briefly dive down, but as soon as the pressure eases, they snap upward with full force.
→ Read the full article on The Market by NZZ
Chart 1: AAII % Bears («Bearishness») reaches highs
Source: NZZ The Market
01The uncomfortable question: why do most investors behave exactly wrong?
The statement that one should look for relative strength in market turmoil is intellectually almost trivial. Yet the overwhelming majority of retail investors do exactly the opposite — they sell precisely when the best opportunities appear. This question doesn't fit into an NZZ column with the necessary depth — but it's the key to understanding why so few investors successfully use corrections: market turmoil activates psychological mechanisms that systematically oppose rational action.
Three mechanisms systematically pull investors into procyclical behaviour:
- Loss aversion. Losses hurt psychologically about twice as much as equally large gains please (Kahneman-Tversky). In a correction, the loss sensation dominates — the reflex is pain avoidance through selling, not rational evaluation.
- Social confirmation. When everyone else is selling and headlines are apocalyptic, holding feels wrong and buying feels insane. Social conformity is evolutionarily strongly anchored — acting against it requires psychological resources scarce in stress phases.
- Recency bias. The recent experience is overweighted. After three months of drawdown, it feels as if the market will "never again" rise. Statistically these are exactly the phases correlated with the highest 12-month forward returns — but statistics don't feel like the emotional experience.
The actual advantage of disciplined investors
Anyone who successfully buys in corrections has no better market overview than others. No better forecasts. No better stock picking. What they have is the psychological discipline to act against the natural reflexes of their own brain. That's the rarest investor characteristic — and exactly that's why it's so dramatically rewarded over long periods. The mathematics of returns follows from this discipline, not vice versa.
02What real relative strength looks like — four recognition signals
Not every stock that "falls less than others" is a real basketball under water. Some fall less because they are structurally boring. Some fall less because their liquidity is too low for panic selling. Real relative strength — the quality marker that becomes valuable in corrections — shows itself in specific signals:
1
Outperformance during broad weakness
Stock falls significantly less than its sector and the broad index — typically <50% of index drawdown over 4-8 weeks. Robust even on days with strong index decline.
2
Stable fundamental trends
Operating business performance, margins, cash generation stay stable or improve, while the stock falls with the market. That's the prerequisite for the recovery.
3
Robust volume behaviour
No spike volume on selling days, normal-to-elevated volume on recovery days. That shows institutional investors hold or buy, don't exit.
4
Sector rotation resilience
Even when the sector goes out of fashion, the stock holds its relative strength against sector peers. Indicates company-specific strength, not just sector luck.
When all four signals come together, you have a real basketball candidate in front of you. The majority of stocks that "fell less in the correction" don't meet all four — they meet maybe one or two, which isn't enough. Disciplined investors systematically work through correction phases, identify the few businesses with all four signals, and position accordingly.
What the AAII bearishness statistic shows
The AAII Bearishness Index measures the percentage of US retail investors expecting a falling market in the next 6 months. Historically this index correlates negatively with subsequent 12-month market returns — when bearishness is extremely high (as documented in March 2025), the following 12 months were statistically above-average. That's not a guarantee, but a robust historical finding. Sentiment extremes are probabilistically turning points — discipline in such phases is rewarded long-term.
03What this means for your quality portfolio
The basketballs logic is a timeless lens, not a one-day setup. It will be highly relevant multiple times in the next 30 years — at every broader market correction, every geopolitical shock, every recession concern. Anyone who has internalised the concept once has a structural advantage that works regardless of the specific trigger of a correction.
Three strategic implications for quality investors:
| Strategic step | What to do |
|---|---|
| 1. Watchlist preparation in calm times | A curated list of 20-30 quality champions with the five quality criteria (cf. Quality companion). In the correction it then suffices to check this list for relative strength — not the entire market. |
| 2. Hold dry powder consciously | 5-15% cash as strategic opportunity reserve. Dramatically increasing this quota by market phase would be market timing — but a base reserve for basketballs purchases is risk-reward optimisation. |
| 3. Enter gradually, not all at once | For identified basketballs build 20-25% of position, then observe. If the correction continues, more tranches. This minimises the risk of buying too early — and maximises the possibility of building at multiple favourable valuation levels. |
| Investor profile | Behaviour in corrections | What to review |
|---|---|---|
| "I sell in drawdowns repeatedly" | Structurally wrong-positioned | Realistically accept: passive index build-up is long-term better than emotion-driven trades |
| "I just hold through corrections" | Solid base, but misses opportunities | Consider watchlist preparation + dry powder strategy for next correction |
| "I buy a bit in corrections" | Good discipline, often unsystematic | Systematise basketballs identification framework instead of buying intuitively |
| "I actively use corrections for build-up" | Structurally superior positioned | Hold discipline, check position sizing, don't become too concentrated in single correction |
How disciplined investors navigate exactly these psychologically difficult market phases — and why discipline in drawdowns decides long-term performance — is described in our pillar "Master Your Emotions When Investing". The concrete basketballs picks in spring 2025 are deepened in the follow-up companion "Basketballs Under Water — 3 Defensive and 3 Higher-Beta Ideas".
04Three scenarios — how market turmoil typically resolves
Nobody can time correction resolutions. But the historical frequency of the three paths helps investors calibrate expectations:
Bull Case
V-shaped recovery — basketballs lead the rebound
The correction resolves quickly and sharply, often within 4-8 weeks. The basketballs that showed relative strength during the correction typically lead the recovery first because institutional investors first rotate into qualitatively convincing businesses. Anyone who entered disciplined in the correction sees disproportionate gains in the first 3-6 months of recovery. Statistically the most common scenario after extreme bearishness readings.
Base Case
U-shaped recovery — bottoming over several months
The correction doesn't resolve sharply but in a multi-month bottoming. The market tests lows multiple times before a real recovery establishes. Gradual purchases at the various test phases deliver better average prices than a single entry. Discipline and patience are particularly valuable in this scenario. Our base case.
Bear Case
Structural bear market phase, further drawdowns over 12-18 months
The "correction" develops into a structural bear market with another 20-30% loss over the following 12-18 months. Even basketballs fall further, but typically significantly more moderately than the broad market. Anyone who entered gradually struggles psychologically in this phase — purchases appear too early in hindsight. But the structural businesses keep working, and after recovery the best returns emerge for the most disciplined buyers.
05What you should review now
This exercise applies not just to the next correction — but as general preparation. Four concrete checks:
1. Watchlist build-up in calm phase. Do you have a curated list of 20-30 quality champions you'd immediately check in a correction? If not, preparation now is more important than any current purchases or sales. In the correction the time for thorough analysis is missing — it must have happened beforehand.
2. Define cash reserve strategy. Do you have a conscious cash quota for strategic opportunities in corrections? 0% cash means in the next correction you miss quality champions at reasonable valuations, not because you don't want to but because you can't. 5-15% strategic reserve is a reasonable floor for most quality investors.
3. Honestly assess drawdown behaviour. If the market loses 25% tomorrow, what do you really do? Do you panic-sell, hold iron-handed, or buy strategically? The honest answer decides whether the basketballs strategy works for you at all. Anyone systematically selling in drawdowns can't win in this strategy — regardless of how good the stock picking.
4. Train identification discipline. Look at current charts: which stocks show relative strength against their sectors over the last 4-8 weeks? Doing this exercise in calm market phases trains the pattern recognition that must work fast and discipline-true in turbulent phases.
What disciplined investors do in market turmoil
They don't panic-sell — they prepared themselves psychologically and strategically beforehand. They open their watchlist and check identified quality champions for relative strength. They activate their cash reserve gradually, in 3-5 tranches over the correction. They stay informed but don't let apocalyptic headlines paralyse them. Over full market cycles — typically every 5-10 years a major correction — this discipline is systematically rewarded. Most investors won't do it like this. Exactly that's why it works for the few who do.
06Frequently asked questions
Did the March 2025 thesis prove true?
You can match this article against market course. The original analysis assumed the extreme bearishness in March 2025 was historically a turning-point signal. The following weeks developed accordingly — the specific market course in the first months after March 2025 showed typical recovery patterns. What remains valid independent of the individual case: extreme AAII bearishness readings are probabilistically turning points. That applies today just as then.
Isn't this just market timing?
A legitimate question. Market timing would be: "I sell everything in April and buy everything in October." What basketballs identification is: "I hold my existing quality allocation, identify within the ongoing correction the businesses with relative strength, and use my conscious cash reserve for gradual additions". That's not timing — that's disciplined risk-reward management within a long-term strategy.
What if I don't have a cash reserve?
Honest answer: then the basketballs strategy currently isn't fully implementable for you. You can still win by directing ongoing savings plan amounts or new investment capital specifically into identified basketballs — that's a weaker form of the strategy, but better than nothing. For the next correction you can now gradually build a cash reserve without selling existing positions.
How do I distinguish relative strength from "just falls less because illiquid"?
Liquidity-driven "relative strength" shows itself in low daily volume, often mid- or small-caps with low free float. Real relative strength shows itself in stocks with normal liquidity profiles that nevertheless perform relatively better. Rule of thumb: check daily volume relative to comparable sector peers. If volume is normal and performance better, it's real relative strength. If volume is unusually low, it's more a liquidity effect.
Further reading — the thematic anchors of this analysis
The Tortoise Problem
Quality as structural defence line in corrections
Basketballs Under Water — 6 Stocks for Your Buy List
The concrete application of basketballs logic
Master Your Emotions When Investing
Psychological discipline in drawdowns
Investing in Turbulent Times
Quality across full market cycles
The Crocodile Will Soon Snap
When divergences warn of corrections
arvy Quarterly Report Q1 2026
Current allocation transparently documented
Market turmoil isn't the problem — your reaction is
The basketballs metaphor is more than a pictorial comparison. It describes a reality of every market correction: not all stocks fall equally. Qualitatively superior businesses fall less and recover faster. That was true in 2008, in 2020, in March 2025 — and it will be true in every future correction. The mathematics of quality outperformance over full market cycles is no random phenomenon. It's the structural consequence of the fact that robust business models produce robust stock prices — even when the broad market acts panicked.
What separates the disciplined investor from the panicked retail investor is not the ability to predict corrections. It's the preparation — the watchlist, the cash reserve, the identification framework, the psychological training. Anyone who has built all this before a correction can act discipline-true during the correction instead of reacting panicked. Over 30 years of investor life you encounter 4-6 major market turmoils. Anyone using the basketballs discipline in each builds a lead the majority of investors never catch up — not because they're less intelligent, but because they're not prepared.
Original written by Thierry Borgeat, Co-Founder of arvy, for The Market by NZZ. The extended arvy companion piece reviewed by Patrick Rissi, CFA and Florian Jauch, CFA. Data sources: NZZ The Market, own analyses, AAII Investor Sentiment Survey (public). Last updated: April 2026.
Disclaimer: This article is for general educational purposes and does not constitute personal investment advice. Past performance is no guarantee of future results. Scenarios are assessments, not forecasts. arvy is a FINMA-supervised asset manager with a CISA licence (Art. 24). Imprint & Legal Notice.
