February 13, 2018
The Only Market Volatility Prediction You Can Count On
“As you can see, we’re experiencing rough air at the moment. But as a reminder, we can’t predict rough air,” said the Delta airline pilot ferrying me from St. Louis to Charleston (via Atlanta—always Atlanta), “so please keep your seatbelts on whenever you are seated.”
Thank you, sir, for giving me precisely the hint of inspiration I needed to frame this week’s note of encouragement while in the midst of one of the crazier market stretches we’ve seen in several years!
Of course, statistically speaking, this momentary bout of stock market extremism is more the norm than the exception. No, it’s not particularly normal to have thousand-point-up or -down days for the Dow Jones Industrial Index. But volatility—market ups and downs—is, indeed, more normal than, for example, what happened last year.
Did you know that 2017 was one of the least volatile market years in decades? The U.S. stock market was not only up for the year—but for every month of the year—for the first time ever. Who would’ve made that prediction late in 2016, in the middle of the craziest election cycle of my two-score-and-two-year lifespan?
When considering this aberration, I can say with confidence one of the very few market predictions I (or anybody, for that matter) can responsibly make:
The market is more likely to be volatile than not.
There are many financial writers and companies who are seeking to capitalize on fear and greed by offering overly optimistic or hopelessly pessimistic takes on any and every market movement. But the best anyone can actually do with intellectual honesty is to acknowledge the obvious fact that we’re currently experiencing some volatility.
And as much as I’d love to shield you from the financial and emotional wrath of the deep valleys, I can only confess that we simply can’t predict when they’ll happen, but they are common enough that we’re well served to maintain a cautious, if not expectant, posture.
To help calibrate your caution and strengthen your posture, however, here is a four-pack of Forbes posts on volatility and risk endurance from the recent past that are perfectly applicable at this very moment:
- Why The Stock Market is Volatile, Why Volatility Hurts, And What To Do About It
- The willingness to endure volatility has tended to reward the disciplined investor, and often the greatest reward immediately follows the most significant times of market turmoil. An understanding of market volatility can help strengthen your resolve for when it is most needed.
- The Market Volatility Tool: True Grit
- A University of Pennsylvania study found that "grit" is the highest predictor of success in work and life--and this trait is especially valuable in investing. What's your grit score? Find out here.
- Take More Risk In Life And Less In Investing
- "I just really wish I'd taken more risk in my investment portfolio," said no one--ever--on their deathbed. For most people, it's important to take some risk in investing to help reach their long-term goals, but here I make a case that
- The Antidote For Stock Market Hysteria
- The antidote for market hysteria is informed apathy. Here's why.
This commentary originally appeared February 11 on Forbes.com
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