Anybody that has watched the financial news this year has to have seen the volatility in the stock market has picked up quite a bit.
Last year, we all got spoiled by the relative calm the markets exhibited.
I’ve always said that the only thing we can be sure of is that things change and it is very clear that the tenor of the market has changed.
Now, of course, people want to know what caused this change.
Was it Trumps tweets or the collusion investigation?
Was it the reality that interest rates are finally on the rise?
Was it geo-political problems in Iran and North Korea?
Was it trade war worries?
Probably a little bit of each and a little bit more but you know in the final end it doesn’t matter. The only thing that matters is that things changed.
So what do you do about it?
First recognize that the calm of last year was the anomaly. These market moves aren’t that abnormal. Think in percentages instead of points. A 500-drop from 25,000 is different that a 500-point drop from 15,000.
Next recognize that there is a difference between volatility and risk.
Volatility is like the weather, you can’t control it, it is out of our hands. It’s short term disorder…it’s turbulence.
Risk, on the other hand, is the permanent loss of capital.
Think of it in terms of an airplane flight. The volatility is the turbulence that we hit and the pilot tells you to put on your seat belt. You get through it although you will likely feel a little queasy. Risk is the plane going down. It happens but it is pretty rare.
This year I’ve seen many people become unnerved by the volatility and make emotional decisions that aren’t in their best long-term interests.
Volatility provides opportunity and the sooner one’s mindset realizes this the better off they’ll be. Traders love volatility and long term investors should embrace it too.
Lastly, there is one tried and true way to reduce volatility. Quit looking at the market so often…go fishing, go golfing, go to the museum, go to breakfast, go to church, go for a walk…do anything other than watch the market and you’ll be surprised at how quickly volatility disappears. Try it, it works.
If you have any questions, please call….I’m Phil Albitz. Thanks for watching.