We have all ridden a roller coaster. Some of us love the excitement, while others shut their eyes and hold on for dear life. Many of us experience the same sensations when it comes to investing. All is good and well when the market goes up or does not change much, but add a little volatility and everybody grabs for the safety bar wondering if this is the time the train goes off the track for good.
Volatile markets can be stressful to investors. But volatility can be viewed in a more positive light. Rapid price changes in stocks can show that markets are working and are being efficient. An efficient market is one that incorporates new information and the stock prices reflect all available information.
Once you accept that markets work – meaning prices can go up and down for an extended period of time – you can take a long-term view of investing and tune out the daily noise. Accepting this reality is the cornerstone to a sound investment philosophy. You can be sure that, sooner or later, the markets will test your resolve. But just as a personal philosophy helps you deal with adversity in other areas of your life, a sound investment philosophy can help you withstand the ups and downs of the market so you can stay the course.
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