The Key to Surviving All This Volatility? Keep Your Cool
(Allie Joseph/New York Stock Exchange via AP)
The Key to Surviving All This Volatility? Keep Your Cool
(Allie Joseph/New York Stock Exchange via AP)
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Dizzy from world stocks’ wild whipsawing? It’s yo-yoing many investors from panic to sweet relief and back repeatedly amid frightful headlines. Who knows when the frenetic ride ends?  No one possesses such clairvoyance. But history shows those maintaining your cool during corrections like this earns big rewards later. To help toward that, here is my volatility survival guide.

In January, I told you 2022’s midyear combination of US political gridlock and fading global fears spelled a great year for world stocks—but with a rocky, grinding first half to endure. No, I didn’t foresee global stocks’ near-immediate drop or Putin’s horrid invasion. Pinpointing any pullback’s start or end is a fool’s errand. But gut-churning short-term gyrations like early 2022’s are the price investors routinely pay for stocks’ high long-term returns. Volatility and stocks go hand-in-hand. Embrace it. Don’t try timing it. You can’t control it—only how you react.

None of the past month’s news—Putin’s tragic mistake in Ukraine, big headline inflation numbers, China’s COVID surge—has changed my belief stocks’ early year struggles are a bull-market correction, not a new born bear market. As I told you in late February, bear markets typically start gradually, quietly, with stocks sliding down a slope of hope—a false sense of security that sucks more people in. Unlike bear markets, corrections—fast swoons of -10% to -20% off a global peak, which stem from any or no reasons. They come and go swiftly, with most attributing the drop to one or several big, widely publicized scary stories. Today’s widely watched fears—the Ukraine war, oil, inflation, rate hikes and political wackiness—fit the profile perfectly. 

Corrections’ biggest danger isn’t the market drop itself. Far worse is enduring the slide… only to throw in the towel and sell before the rebound. Bounces off the bottom are fast and furious, whipsawing those seeking to sidestep full-fledged bear markets that never materialize. 

Defining and dating bull market corrections’ beginnings and ends—especially in the pre-war period—is as much art as science. But by my count, since good data start in 1925, we get one about every two years. The median decline? -13.8% over a 2.1 month span, not including dividends. But the rebounds came about as fast—the median recovery took just 2.8 months.  

Crucially, correction bounces don’t usually stop there. As scare stories dissipate, stocks keep soaring past prior highs. Again since 1925, the median S&P 500 gain six months after a correction low is 23%! A year after the low? 30%. Two years? 44.0%! 

This isn’t ancient history, either. There have been 10 S&P 500 corrections in the last 25 years. “Causes” ranged from the Asian financial crisis and Russia’s 1998 default to the second Iraq War and Europe’s sovereign debt crisis. The median decline was -14.4%, and lasted 2.6 months. Recovery took a median 3.6 months, with stocks rocketing 29.3% in the 12 months off the low—24 months later they were up 48.9%.

But what about Russia? Europe’s energy crunch? Inflation? Rate hikes? Remember: Corrections always bring scary this time is different—first and worst narratives. They grow exponentially more frightening when war is included—hence why it is so important to stay cool. 

Ask yourself: Even if these worries have significant economic impact, are they unknown to markets—hence not yet factored in to prices? Doubtful—these have been headlined for many weeks. Bank of America’s March survey shows global fund managers as dour on equities as any time since March 2020, with inflation and geopolitics their big concerns. Polls from German investor confidence to US consumer sentiment absolutely tanked after Putin invaded.

Historically, instead of a V-shaped bottom, about a third of corrections feature a W-double- bottom.  So maybe 2022’s correction ended with mid-March’s big bounce.  Or maybe it was a head-fake. For portfolio decisions, that means zilch. While short-term wobbles may persist, acting on them is folly. In my 50th year managing money professionally, I have never seen anyone who could time such volatility. Who can time pure sentiment swings? Feelings are fickle.

Yet investors repeatedly try timing volatility and fail.  Give it up. Instead, remember three critical points: 

●   First, if your goals need stocks’ high long-term returns, they’re your baseline investment. Deviate only if you see a huge, probable negative others don’t. That is rare—and different from today’s clearly seen Ukraine, inflation or rate hike worries. 

●   Second, remember: Volatility cuts both ways—down and up. Bull markets feature much more of the latter. In the long 2009 – 2020 bull market, world stocks endured 7 corrections and 11 other down moves exceeding -5%. Despite this, global stocks soared 341.8%.  

●   Third, if watching markets’ super-swings keeps you up at night, stop watching! Quit checking your portfolio regularly. Steer clear of the non-stop news drama. Tune out the shrill yak-yak-yak. Take a hike. Watch every Kay Francis movie ever. Play with the grandkids. Do whatever it takes to keep from selling low and missing those post-correction parties.

You won’t get equity-like returns with less than equity-like volatility. So embrace gyrations. Stay cool. Patience rewards.

Ken Fisher, the founder, Executive Chairman and co-CIO of Fisher Investments, authored 11 books and is a widely published global investment columnist. For more, see Ken’s full bio, here

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