The concept of volatility has always fascinated me. Volatility from the angle that people constantly change their minds, alter their strategies, reverse their convictions. In the investment industry, volatility is actually a proxy for risk. The more an investment fluctuates, such as movements in stock prices, the riskier the investment is considered.
I am not a particularly volatile person. I do change my mind, but usually after careful consideration or from a desire to be less dull than usual and to inject a little drama into my life. I seldom make last minute changes when the waiter comes to take my dinner order, whereas certain people I know will ask a zillion questions, make a decision and then change it three times before the waiter is allowed to commit it to writing. I see no particular benefit in being so indecisive since these people make as many ordering mistakes as I do, but expend far more energy doing so.
Thus the fluctuations of the stock market interest me. The other day the Dow Jones went down a couple of hundred points--a big sell-off due to concerns caused when the Federal Reserve chief commented that she thought stock prices to "be a bit on the high side" and a temporary concern about growth prospects in the economy. All the worry warts rushed to sell off their stocks to buy relatively safer bonds. But they'll be back in the stock market in the next week or so when their fear subsides and their greed increases.
Financial markets often go haywire over short periods of time, but history shows that frequent traders who respond to every herk and jerk of the Dow almost always lose in the long run. Most of them know that market timing doesn't work but they do it anyway. Action based on volatility is almost always counterproductive unless you are the rare individual who functions best in a crisis. Most of us do not and thus slow, steady, decisive, and boring is usually the most profitable route. And to certain people who are not me and are excitable by nature, I say save your excitement for theme parks, casinos, and computer games. Investment markets reward boring behavior.
(But do note: There is some academic truth to the Wall Street adage of "Sell in May and go away." Markets usually do poorly in May through September and recover in the final quarter. Why? How should I know?)
I am not a particularly volatile person. I do change my mind, but usually after careful consideration or from a desire to be less dull than usual and to inject a little drama into my life. I seldom make last minute changes when the waiter comes to take my dinner order, whereas certain people I know will ask a zillion questions, make a decision and then change it three times before the waiter is allowed to commit it to writing. I see no particular benefit in being so indecisive since these people make as many ordering mistakes as I do, but expend far more energy doing so.
Thus the fluctuations of the stock market interest me. The other day the Dow Jones went down a couple of hundred points--a big sell-off due to concerns caused when the Federal Reserve chief commented that she thought stock prices to "be a bit on the high side" and a temporary concern about growth prospects in the economy. All the worry warts rushed to sell off their stocks to buy relatively safer bonds. But they'll be back in the stock market in the next week or so when their fear subsides and their greed increases.
Financial markets often go haywire over short periods of time, but history shows that frequent traders who respond to every herk and jerk of the Dow almost always lose in the long run. Most of them know that market timing doesn't work but they do it anyway. Action based on volatility is almost always counterproductive unless you are the rare individual who functions best in a crisis. Most of us do not and thus slow, steady, decisive, and boring is usually the most profitable route. And to certain people who are not me and are excitable by nature, I say save your excitement for theme parks, casinos, and computer games. Investment markets reward boring behavior.
(But do note: There is some academic truth to the Wall Street adage of "Sell in May and go away." Markets usually do poorly in May through September and recover in the final quarter. Why? How should I know?)
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