Market volatility of 1% in a day seems rather common these days. Is this normal?
Volatility - the up and down movements, especially intraday (from 9:30 AM - 4:00 PM) - of the stock market has been analyzed by many practitioners and it is interesting to observe trends.
A 100 point swing on the DOW when it is hovering in the 10,000 range is equal to 1% (or 12 points on the S&P 500 when it is in the 1,200 range). Adam Hamilton, CPA charted the historical volatility for a 10-year period from 1996 to 2005. This included the bull market ending with the stock market bubble that burst in March of 2000 and the subsequent bear market that followed to a 46% decline in the market before its subsequent rise again starting in October of 2002. An interesting period to observe, indeed.
During the bull market (1996-2000), rounding days to the nearest 1-day:
67% (14 out of 21) of the days in a month saw a 1% change (either up or down)
18% ( 4 out of 21)....................................................2% change
4% ( 1 out of 21) ...................................................3% change
During the bear market that followed (2000-2003):
87% (18 out of 21) of the days in a month saw a 1% change (again, either up or down)
35% ( 7 out of 21)....................................................2% change
10% ( 2 out of 21).....................................................3% change
Fear spawns volatility and this appears to continue to be true. By 2005, 3% changes in the market on a daily basis were non existant as greed and complacency replaced fear until October of 2007 when fear again surfaced.
Company's earnings matter in the long-term, but in the short-term sentiment (fear and greed) as measured by volatility drives the markets. Stock positions, therefore, should be long-term holdings since no one seems to have discovered a method to predict future short-term movements.
Buy and hold and rebalancing does work and is not dead as a strategy. It is just very hard to implement. Those who did so during this 2007-2009 rollercoaster did not miss the 50% downturn but also did not miss the 60%+ upswing. Rebalancing through this turmoil was a tried and true methodology. The money that was used to purchase stocks at the lower points on this rollercoaster returned enough to help offset the declines. Those investors are near or surpassed break-even.
Buy and hold does work for those with a long-term outlook and strategy.
An Introduction
Hi. Welcome to BourGroup and my blog. Phil
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.