Volatility Remains

Written by Nathan White, CFA

photo by erik ERXON

How long will the current historic levels of volatility remain?

Investors everywhere seem to be throwing in the towel, and the selling never seems to end. The negative sentiment feeds on itself as selling begets selling.

Opportunities abound, but mean little when everyone wants out. There was an article in The Wall Street Journal last Friday, Nov. 7 about the forced selling at mutual and hedge funds because of redemption request. Even the few hedge funds that are up on the year are receiving redemption requests of a quarter to a third of assets! How's that for gratitude!

I definitely believe it is a good time to buy when people are being forced to sell.

The problem is there is no way to know when it has ended until after the fact. Now is not the time to change your entire portfolio allocation to cash if you need returns better than cash for the long-term.

During extreme periods of volatility such as the current environment, it is very difficult to think long-term. The crowd will extrapolate what is happening in the short-term into the long-term and over do it.

You see that happen on the upside and the downside. Your financial decisions should be based on a long-term view so that when these types of circumstances occur you are not forced into a rash emotionally charged decision.