It is, I'm afraid, a fact of life. Changes in market structure, new technology, and instant information all add up to driving forces that cannot be turned back. They add up to greater velocity in market movements. So what does the private investor do about it?
The first thing you do is not worry unduly. We are all in the same boat, professional and amateur alike. You may think that more volatile markets favour the professional, but I doubt this is the case. A technical analyst of many years experience once said to me that trying to time your entry or exit from the market was a mug's game: if you have cash, put it in. He was, of course, speaking when markets moved more slowly. Still, his message has relevance, even if it is that no one should try to be too clever.
For many professional managers, what they do with the funds entrusted to their care does not allow the luxury of timing anyway. Perhaps their mandate demands that money is invested immediately. Index fund managers are certainly constrained in this way, and that is one of the reasons why volatility is so much a factor these days. Increasingly, too, compliance requirements will lay down restrictions on how much cash can be retained in a portfolio, and for how long. But the ability to stand back and decide when to buy is an important benefit that private investors will increasingly find belongs only to them.
It's worth remembering that markets are high because more people are buying, and low when there is a preponderance of sellers. Yet you should be buying low and selling high. I spoke at a conference recently on coping with volatile markets and ended with a little-used quote from one N M Rothschild: "Buy when the cannons are thundering, and sell when the violins are playing". Many private investors are in a better position to be contra- cyclical in their approach - and that is what Nathan Rothschild was urging us all to be.
Still, if volatility does one thing, it increases the argument for pound- cost-averaging - that's the process by which money is dripped into the market on a regular basis. By investing in this way, you buy fewer shares when prices are high and more when they are depressed. Investment savings plans, such as those applied to investment and unit trusts, use this approach - and very effective it is too. It certainly takes the worrying out of timing.
In the end, we must simply learn to live with volatility. Like cutting the journey time from New York to London from days to hours, it is merely the result of the inexorable advance of the modern world. True, those seeking to buy a retirement annuity may feel uneasy. But it may even be that we will need pound-cost-averaging when it comes to selling.
Brian Tora is chairman of the Greig Middleton investment strategy committeeReuse content