“The only thing we have to fear is fear itself.” – Franklin D. Roosevelt, 1933 Presidential Inaugural Address
If the massive ups and downs in this market over the last couple of weeks have left you feeling queasy, well, you are not alone. I have been keeping a bottle of Pepto Bismol within reach (just kidding – it’s actually more like three bottles!).
We can see and feel the anxiety with every market open, and it soon degenerates into a game of chicken to see who can get out the door first. This stress-fueled situation is a far cry from the conditions we have enjoyed for the past few years, but when the landscape changes, we have to identify it and make our move.
Markets move with electrifying speed these days and far more velocity and acceleration than we are used to. Five percent drops that years ago would have taken a few months to occur are happening within weeks. The scary nosedives are making us all wonder if this time is “The Big One,” and naturally we remove ourselves from the situation. The sidelines are not a bad place to be when you are uncomfortable, especially because it appears that volatility is here to stay.
When market volatility is low, there is much more confidence that markets won’t whipsaw, but when the boat starts tilting from one side to the next then there is the potential for sea sickness. With outcomes unknown, we are left to wonder if the end is nigh. Of course, those investors who bet on any outcome always lose.
The fear we see each day is created by our own internal uncertainties about the outcome of negative geopolitical situations: the Ebola crisis, the ISIS insurgency, Russia v. Ukraine, Israel v. Hamas, the Fed policy – the list goes on. None of these have a clear cut, positive resolution in the foreseeable future, so if investors believe it is “The End” due to one (or a few) of these issues, why should they be left holding the bag? It’s time to cut and run!
There are a few reasons not to panic:
Markets are still within striking distance of new highs and have tons of room to come down – without even damaging the long-term uptrend.
We can look at history and the charts to see how uncertain outcomes eventually resolve in markets. Without a doubt, the fear of putting money to work fades every time. But what is your time frame? Are you trading short term or long term? Market volatility creates great investing opportunities in the long term. When prices drop, they eventually head back up – history tells us this. Even in the short term, wild movements create some trading opportunities.
The bottom line:
Use the fear and uncertainty of market volatility to your advantage. These moments are not common, AND they offer some fantastic opportunities to take profits. Investors and traders tend to make the most money when fear peaks. Is now one of those moments? Which side do you want to be on?