Market Volatility

Posted on 13 April 2013 by Douglas Chadwick

A useful investment maxim to remember when markets are volatile and unpredictable is one that I believe has its origins in Africa. "The best time to plant a tree is twenty years ago, but if you have failed to do that, then the next best time is now." Investing is all a question of  time perspective. At the height of the 2008 financial crisis Warren Buffett put the situation into his own perspective. He said that during the previous one hundred years, the USA had been through the Great Depression of the 1930`s, a great many conflicts including the Two Great World Wars, oil and financial crises, but yet the DOW index had still risen by more than 1750% over this same period. It is difficult to  constructively read the financial commentators at these volatile times, with their different and sometimes totally opposing views on the same situation. The world however needs the comments of both the optimists and the pessimists. Remember the optimist invents the airplane and the pessimist the parachute. If we did not have both the "bulls" and the "bears" operating at the same time, then the market would cease to operate as a market. They act as a counterbalance to each other forcing us to examine whether our glass is half empty or half full. As an investor you must accept that some level of market turbulence is part and parcel of your life. However in Hurricane conditions there is no shame in being tucked up in port, safe in a risk free asset such as cash. The storm will start to abate, and then the policy of being to cautious may be the greatest  risk to your long term wealth. It will be difficult to maintain the purchasing power of your money if it is invested in risk free assets for any length of time.