Seasoned investors will have no trouble recognizing this bumpy road as something similar to what investment markets can be like at times. However, unlike a scenic roadway, none of us feel exuberant with the ups and downs of the investment markets, particularly when we find ourselves in a period of high volatility. The market swings of the past number of weeks can be unsettling, but we need to keep in mind that these periods of volatility represent an unpleasant, but normal part of stock market behavior. Sometimes the investment road gets rather bumpy as you journey forward.
This whole year has been one of volatility and November continued the theme. With some wild swings in the opening days of December it looks like the final month of this year may be more of the same. Despite this troubled year, as we look at the bigger picture we see a total return gain in excess of 300% on the S&P since early March 2009 (despite several significant corrections during this period). History suggests that periods of sharp declines have often been followed by periods of some of the most favourable returns. The strong historical tendency of markets to rebound provides evidence that fear-induced alterations to asset allocations are unnecessary.
Overall, our portfolios have enjoyed healthy gains for a number of years, so it was inevitable that we would see this type of volatility at some point. In my view, we should do the same thing we have advocated during other corrections… buy into these markets, or just hang on and don’t panic. Buying into these previous corrections and not panicking has rewarded patient investors. During these times of terrible market sentiment it’s often the time to seize the opportunity. I have repeated this message many times over the past 25 years, and I still believe it to be a sound strategy that will once again reward investors who stay focussed on the big picture.