A closer look at the stock market’s recent gyrations
It has been quite a stretch for the Dow Jones Industrial Average. In just the past 30 trading days (6 weeks’ time), it has moved by a total of 31,895 points. That was from Monday, February 23 through last Friday, April 3.
That’s what you get if you add up the daily change for each day during that time, regardless of whether the Dow was up or down. That’s over 1,000 points a day!
Volatility? I’ll show you volatility!
Certainly, you have felt that movement. We all have. But when we look at it more closely, we find something surprising. As volatile as this market has been, it may actually be even MORE volatile than we even realize.
I looked back to see how long the Dow took to move by nearly 32,000 points in the days prior to that 30-day period I tracked above. As it turns out, it took many, many trading days. 211 of them, in fact! Here is that prior period of 211 days.
And, here are the past 30 trading days, which produced roughly the same point movement.
The Dow just moved as much in 30 trading days as it did in the previous 211. So, it has been more than 7 times as volatile.
It took 6 weeks to move about as much as it did in the prior 10 months
This was based only on the closing value of the Dow each day. This does not even account for the massive back-and-forth movements that occur within each day’s trading.
What does this mean to you, the investor?
The bear market is likely just beginning. Obsessing over picking market bottoms is likely to be a frustrating and very costly endeavor for a while. Don’t be tempted. Even if I am totally wrong about that, you will have plenty of time to catch the next big bull market.
That does not mean you can’t identify the companies you would like to own, and determine how much you should be invested in those companies now, if at all. Investing is NOT an all-or-nothing game, despite what so many “experts” seem to be implying lately.
Finding the “right” level to own stocks
Expect the wild times to continue. A hallmark of bear markets is the idea that the market goes through a difficult time trying to establish what the true “fair value” level is. That is not a days- or weeks-long process. It is months, or perhaps as long as a couple of years.
During that time, rallies will be excuses for high-frequency trading systems to sell. And, there will be periods in which all stocks will be treated like dirt, no matter what they do and how big or “defensive” they are. Don’t get frustrated, get a process you can be comfortable with!
Perspective at a historic time for investors
Staying anchored to home for several weeks is not the only change we are all going through right now. As investors, we also should be taking this new stock bear market head-on. That means recognizing that profits can be had over short, intermediate and long-term time frames.
However, you have to think more about engineering returns, and less about being a “fundamental” investor. A lot of what worked the past decade is being thrown out by the market, and probably will be for the foreseeable future. That is the message of the past 30 days.
Thanks to Tyler Isbitts, student at Indiana University’s Kelley School of Business, for his research assistance with this article.