Broker Check

Investor Discussions - Market Volatility

Wealth & Pension Services Group
William Kring, CFP, AIF - Chief Investment Officer

Don’t Let the Stock Market Waves Leave You Seasick

It seems that virtually everybody agrees that during the last few weeks, the investment markets have been ruled more by emotions than logic. But as we watch the markets rise and fall like giant ocean swells, it's fair to ask: how, exactly, does this happen?

Please stay seated and keep your hands and legs in the market.

A recent Reuters news service articlecoined the term “bipolar investing” to describe a market that:

  • Is highly volatile

  • “… [V]eers from despair to euphoria with each passing news headline.”

  • Puts an emphasis on what market sectors – not people – think

  • Relies on computer algorithms to generate market predictions

  • Is replete with words like “hair-trigger,” “knee-jerk” and “herd” trading

What appeared to be a summer phenomenon of never-before-seen peaks and dips is hanging on through the fall and, according to Reuters, is not likely change going forward. Until they outlaw computer trading technology (not likely), I agree that we’ll be stuck in roller coaster mode for some time to come.

Although market fear is causing some investors to panic, don’t let it happen to you. Be a smart investor and:

  1. Be aware, but not afraid. Impulsive behavior should be avoided… but so should sticking your head in the sand. Don’t buy high/sell low and don’t drop out of the market entirely. If you are a long-term, buy-and-hold investor, stay the course.

  2. Let the facts, not the media frenzy, guide your investing practices. As the Reuters article stated, “…doing nothing may well be the best strategy...” Judging by how the August 8 flash crash subsequently rebounded and erased those tremendous, I would tend to agree.

  3. Take advantage of the market fluctuations. There are opportunities to win even in a losing market. Make sure your financial advisor has optimized your portfolio to take advantage of the current market volatility.

The stock market is the only part of our economy where people flock into the store to buy when prices are going up, and rush for the exits whenever prices go down. Here's a prediction: a few years down the road, a lot of investors will look back at their participation in the herd mentality and wish they could have had the fortitude to buy when everybody else was selling.

Source: Reuters.

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