Volatility gets way to much attention. It’s almost as if investors are codependent on the short-term twitches in the market. They need it, just know the market is working for them. And good ole Mr. Market loves the attention.
Jason Zweig summed this up nicely in a short article: Volatility: In the Eye of the Beholder. In it, he included this image showing volatility over three different periods.
When you focus on the daily view, you play right into Mr. Market’s hands. The result is worse returns due to – poor decisions, higher transactions, higher tax rates – any number of things. The quarterly view is less bad. And annually is better.
From right to left, it’s very apparent volatility is a short-term problem that fixes itself over time. Even calling it a problem is a stretch. This is why staying glued to your time horizon is so important. When you look at this over 5, 10, and 20 years the picture gets even better. Weening off of the daily view is the best way to improve returns.
- How Scary can Investing Be? – Monevator
- When Everyone Wants to be Different – M. Housel
- CAPE 10 Ratio In Need Of Context – L. Swedroe
- Ten Lessons from John Templeton – Daily Reckoning
- The Third Wave of Indexing – Morningstar
- Are We All Rent-Seeking Investors? – ProMarket
- Negative Rates Are Dangerous to Your Wealth – Research Affiliates
- The Secret Shame of Middle-Class Americans- The Atlantic
- Apple’s Organizational Crossroads – Stratechery