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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Volatility the norm

By Tim Paradis Associated Press

NEW YORK – The stock market’s swings have made it a tough year for investors who check the balances on their retirement accounts with any frequency. But as painful as they might seem, the gyrations aren’t all that unusual.

It’s easy to see how anyone might lose perspective when days with triple-digit moves in the Dow Jones industrial average feel almost commonplace.

The fractiousness in the past 12 months is “a little elevated,” but not well outside what’s been seen before, said Francis Kinniry Jr., a principal at Vanguard Group and co-author of a study examining stock market fluctuations.

He contends volatility is simply a force that many investors hadn’t been used to but that it’s not uncommon or something to fear. “If it can go 400-600-800 on an up day you should expect the same on the downside,” he said, referring to the market’s moves.

It doesn’t help that investors’ memories can be short. From 2004 through 2006 volatility was low by historical standards so even a return to normal levels of ups and downs might at times feel like the market’s foundation is giving way.

And of course volatility that sends stocks lower is harder to take than when the market jumps around but still mostly moves higher. Kinniry said many investors, even professionals, had grown used to a streak of largely uninterrupted gains in stocks. From 1982 to 1999 there was only one year when the market went down. “There has typically been one in every four years,” he said of downturns.

Market declines can be dispiriting and even frightening, but big moves might simply underscore uncertainty and not necessarily portend a calamitous pullback, observers note.

“It’s just like a bouncing ball,” said Neil Hennessy, president and portfolio manager at Hennessy Funds, referring to the market’s latest fluctuations. “It’s up and down but you’re not going anyplace.”

He said jittery trading can make conditions seem worse than they are. While the major stock market indexes are down between 10 percent and 15 percent this year, Hennessy noted that declines aren’t ruinous. “This isn’t a crushing blow.”

Mark Travis, chief executive of Intrepid Capital Funds, encourages investors to sift for opportunities amid the wreckage left by the market’s back-and-forth trading.

“Maybe it’s a time to add to your positions. Hold your nose, close your eyes and jump when they get cheap,” he said of investments like valuable but beaten-down stocks.

Beyond bargain-hunting, he said investors should know what they own and what they think it’s worth so that they can feel more confident when squalls arrive. Separating investments into short-term and long-term piles can also help investors avoid feeling at the mercy of volatility, he said.

Kinniry said it’s important to understand that volatility is part of the trade-off of investing in areas like stocks, which tend to offer bigger returns than safer corners like money market accounts.

“If investors can have expectations for this volatility they may not panic or do the wrong thing when they see it,” he said.