It Is a Euphemism
Published On: April 13, 2020
Written by: Ben Atwater and Matt Malick
In the world of investing, “volatility” means you’re losing money. For example, commentators refer to a bad quarter, like this most recent quarter, which was the worst first quarter ever for stocks, as being a “volatile” quarter.
It doesn’t work the other way around. Nobody said the fourth quarter of 2017 was a “volatile” quarter, rather people said it was a “great” quarter for equities. Even last week, the best week for the market since 1974, commentators called a “bounce,” “rebound,” “rally,” even a “new bull market.”
So, in investing parlance, volatility is a euphemism for losses, while observers tend to use more positive words for market advances.
Therefore, volatility has a bad name, not least because it’s stressful. But volatility is necessary. It keeps speculators and marginal players from being long-term investors, freeing-up bigger returns for those of us who stick to our investment discipline.
Not only can we benefit from the long-term profit growth of our companies, but, as long-term investors, we can also benefit from the mistakes of others. Forced liquidations and panic selling are good for us.
In a note on March 9th called Facts & Figures, we shared with you some statistics from BlackRock, the world’s largest asset manager. Today, we are going to share historical perspective on “volatility” from the world’s second largest asset manager, The Vanguard Group.
Markets have an incredible amount of information to process related to COVID-19 and its longer-term economic impact. This will take time. In our view, patience is the most important attribute an investor can possess in this environment.