How to Handle Market Volatility?


Last week I accidental came across an investment coaching video entitled “How to Handle Market Volatility?” I thought this would be very helpful lesson when we are now in the midst of market extreme volatility. In fact I would say, it is a very good teaching. The gist of the lesson is during market volatile time, investor should focus on long term investment goal rather than short term market movement. As long as we have made sure that all our investments are rested on sound fundamental stocks, market will recover after each correction. The video quoted a recent historical period where market fell and recovered to prove listeners about his point.  

Keeping Long Term Goal

Honestly I have seen this kind of “good” advice many years ago. I believe this is a sound advice for buy and hold strategy. However many investors could not follow this advice not because they do not have a long term investment goal. But rather many occasion whenever market fall, analysts and news articles make it looks like the end of the world is approaching.

If you do not run away, you will be trapped forever, or incurring greater losses.  That’s why there are investment advice even saying that when you want to be a successful investor, you cannot read newspaper. Newspaper is just a distraction for our long term investment goal. I personally know a professional market player who practices newspaper abstinence principle and seeing good result for many years.

Market psychology is very complex

But I also believe there are those in the market who do read newspaper but able to ignore their influences. They simply shrug off those analysts’ doomsday prediction and stay with the market ever since.  They are possibly the ones with the most profitable by now. This kind of treatment, shrugging off market drop and doomsday prediction or even buying more at market dips could become their investment philosophy and strategy.

Buy and Hold Strategy

If they are doing well and eventually proven profitable, this will become their investment habit and self-confidence.  The more they prove workable, the more it crystallizes in their mentality or investment philosophy.  

The biggest problem comes when we do not know which market fall is truly the doomsday of the global economic recession. When it comes, the lost could be large and regrettable. This could be one of the market snares we could have when it comes to stock market investment involving complexity of investment psychology.

We as retail investors perhaps do not have enough capital to loss.

 For most of us who are just small retail investors, especially those who are just beginners, we possibly do not have such capability to loss big. The best way to handle market volatility is possibly to abstain from market exposure. Someone puts it nicely saying that if you see the train is coming in front of you, you probably won’t keep on standing there.  

When we see the global economy where the two giants are cornering each other irresolvable, liquidity tightening up by Federal interest rate hike, exhaustion of financial stimulus, oil prices’ impending crisis, high market PE, etc … will these be the signs of the train coming in front of us?

Standing in Front of the Train

No one can really be certain at this moment, unless major US market indexes drop below their current level next week or so.  If market recovers and moves up again, buy and hold believers will once again cheer their belief system and solidify their investment philosophy even further.

There is no perfect answer, however, so long as it fits us and make us sleep better at night. That would be a good investment philosophy.  The most beautiful thing is, in investment, we need to answer no one but ourselves.

Perhaps, there will be a better time for us to use such buy and hold strategy, look at long term goal, ignore short term market volatility.The perfect time will be the time when we start everything again from the big bear bottom. By then, even if we are wrong, our investment would be trapped temporary.Not like now, if we are wrong, our investment could be trapped for ages.

Stay tuned, keep watch on how market turns itself in the next few weeks!

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RISK WARNINGS

The view and opinion expressed are personal views of the author and are subject to change based on market and other conditions.  This write up does not constitute sole advice for investment decision. Investors are advised to do further reading and research to conclude individual decision.

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