Volatility is defined as sudden and sharp movements in both directions. We are specifically speaking about the volatility of global investment markets. The year 2011 has been one of the more volatile years in history.
Market trends these days don’t seem to last more than a day or two. Heck on May 6, 2010 we saw a “flash crash” that lasted just minutes. At roughly 2:30 pm the Dow Jones Index lost 9% of its value, only to recover those losses in a matter of minutes.
Clearly investors are seeking answers and direction on how to deal with all this volatility. The reality is that there just isn’t an easy answer. It comes down to you, your investment personality, your time horizon, and your ability to not be cajoled into making mistakes.
Yet investors both experienced and inexperienced are showing signs of fatigue. Whether it’s the Greek debt crisis or the fear of an imminent recession, the markets cannot seem to settle down. The period from May to October 2011 was not pleasant. The trend was one day up and two days down. This was then followed by three days up and two days down. The result for many was gut wrenching and emotional.
Some have turned to market timing, basing their investment decisions on current events in the daily press. This boils down to pure speculation. The unwavering truth is that the market cannot be consistently timed correctly. It does not matter who you are or how much education or investment experience you have; market timing only works some of the time.
Others have adopted a “go to cash and wait for better days” strategy. This is also a form of market timing and speculation. Sell today, maybe at a loss, park money in cash at almost zero percent return and then wait for the market to go up (to some this is settling down) then reinvest back into the market. The trouble is picking the best point in time to return to the party.
If you are truly a long-term investor, you may wish to study what others, who have decades of experience and knowledge, are doing about the current market volatility. They know and understand the companies that make up the market. Warren Buffett, the greatest investor of all time announced in September that his company, Berkshire Hathaway Inc., would begin buying back stock. The price was too cheap. Buffett was not alone. Other major companies that announced buyback plans included Wal-Mart, Exxon Mobile and JPMorgan Chase to name just a few. Look beyond the headlines, ignore the volatility (no, correction: take advantage of the volatility), and think and invest like the pros.
Do not succumb to the negative press. Review your goals and as long as your objectives have not changed then stay the course. Ask yourself how you would invest if today was the first day of your deposit. If your allocation would look the same then don’t do anything.
The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., to discuss your particular circumstances or suggest a topic for future articles at 613-798-2421 or E-mail rick@invested-interest.ca. Mutual Funds provided through FundEX Investments Inc.