Volatility is definitely back, and that typically means that the market is going down, right? Volatility can be up or down but investors only become nervous when it is going down. We enjoyed weeks of consistent up markets, often dramatic, but this was not volatility, this is the way it is supposed to be.
Volatility returns in order to shake you out of your shoes and make you do things that are totally illogical. Volatility is what makes investors nervous, sell when the market is down 8% thinking that it is going down 20% or 50%, only to go back up again after you sell. At that point you have sold out and missed the up market. Then after weeks of up markets, you get your confidence back, you buy again, only to have the market go back down again. Is this not the typical of the average active individual investor.
Volatility is normal. It occurs many times per year and often daily. One professional compared it to getting on a rollercoaster and the ride was a wild up and down only to end up at the same place you started.
Don’t let volatility con you into making bad decision. If you believe in a company don’t bail out just because the stock has gone down. If there are business reasons why it declined, that is another decision and you should re-consider whether you should own it. It is very difficult to time the market exactly so be aware of what is going on but don’t make stupid decisions based upon impulsive reactions to downward volatility.
For additional information, contact Richard Taylor.