Volatility, Friend or Foe
Taking a page from Dr. Phil, “Today I want to talk to you
about…”
Volatility, Friend or Foe?
Most people equate market volatility with market risk and
for the short term investor (Hedge Fund managers, day traders, etc.) that can
certainly be true, but that’s not a game I want my clients to engage in.
I know that clients get nervous when the market is down,
particularly when it is down several hundred points and those down trends are
lengthy. However, for a long term
investor (one that expects to buy a company and it hold for 3 to 5 years or
longer) volatility can present opportunity.
Depressed and volatile markets often allow your portfolio
manager to buy good companies at reduced prices. Don’t be surprised to see a fair amount of
buying during these times. Conversely, when
the market is up expect to see some selling because this gives the portfolio
manager a chance to take some profits when these companies are over valued.
However, do not expect a manager to buy at the very bottom and sell at the peak,
which will rarely, if ever, happen.
It’s just natural to feel nervous when you are bombarded
with nothing but bad news. Nevertheless,
after a careful reading of the enclosed Brandes publication,
I hope you can become more comfortable with volatility and perhaps begin
viewing it as a friend rather than a foe.*
If you would like more details, I’d be happy to sit down and
discuss any questions you might have. I
always want to know what you are in interested in, so if you would like me to
discuss specific topics in future letters please let me know.
P.S. Next month will be our KMS client quarterly and we will have a
major announcement for you to look forward to!
* Of course, any investment decision should be made after careful review of your individual financial situation, risk tolerance, investment objectives and time horizon.