Volatile, unpredictable…and entirely normal

Stock markets have been jittery lately.

After improved sentiment last quarter, investors now appear to have heightened concerns. Not only have fears around China resurfaced, stoked in part by downbeat economic data and circuit breaker sell-offs, but weak global commodity prices also continue to elicit concern. Oil now sits below $30 per barrel, while the VIX index, a measure of volatility in the S&P 500, remains at an elevated level (approximately 29).

A lot has been going on in the global economy…enough that some shops have issued dire warnings of the days ahead. But while recent events do appear negative—insofar as they represent bad cards that have come up—they are not wholly surprising; the risks around China and weak commodity prices have been known for some time. Moreover, they warrant neither a kneejerk reaction nor panic.

Investor apprehension in this environment is both understandable and natural —and we must ensure it does not hijack us.

Times like this can be stressful. With so much general apprehension and dramatic media coverage, it can be difficult to detach from the noise that makes everything feel like the world is ending. But the reality is that what we are experiencing now is not that unusual. A primary characteristic of stock markets is that they are volatile and unpredictable. The current situation is not especially abnormal in the context of stock market history, even though, yes, there are risks out there, and yes, the sentiment is anxious.

Here’s the important thing to remember: the stock markets’ tendency to be volatile is why we build long-term plans and resilient portfolios in the first place. It matters less that markets have become volatile, and more that portfolios are constructed to be resilient during periods of volatility. This is why our team at Mawer builds diversified portfolios of high quality companies.

Fear is normal when dealing with the ebb and flow of markets. It may be hard to ignore, but that doesn’t mean we need to internalize it. Keeping it at arms’ length may be easier when we remember the long-term strategy we already have in place.

As the famous Roman Emperor, Marcus Aurelius, once wrote in Meditations:

“Never let the future disturb you. You will meet it, if you have to, with the same weapons of reason which today arm you against the present.”



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  • Kent Murphy 21/01/2016 10:40am (2 years ago)

    Gravatar for Kent Murphy

    Hi Kara- very much value & enjoy your insightful comments on investment & current state of global economy. Just finished "The Big Short" a great read. Amazing how few called for this sub prime mortgage meltdown.
    2008 was very painful experience indeed for many. Now that I'm retired & given current global volatility, I'm convinced that the Global Balanced Fund satisfies my risk-reward investment strategy. Ref: the efficient frontier(1977-2011), over this 25 year span the best portfolio ratio generating average 11.3% return was 60% Equity(S&P 500 Total Return) / 40% Bond(Merrill Lynch 7-10 yr US treasury index). Regards, Kent

  • Westley Nixon 21/01/2016 11:33am (2 years ago)

    Gravatar for Westley Nixon

    How refreshing - thanks for another great post. I admire your levelheadedness when the reason of so many other market participants today is crippled by "uncertainty". During these times of heightened market anxiety, I find that seeking wisdom from those with a wealth of experience built through many market cycles is especially useful. The overwhelming advice tends to be: remain calm, rational. Avoid being consumed by news-headlines and remain focused on selecting high quality companies that, during these times, tend to go on sale.

  • Cory 21/01/2016 11:55am (2 years ago)

    Gravatar for Cory

    A thoughtful and welcome article properly addressing the market and informing investors.

    Thank you,

  • L Young 21/01/2016 12:52pm (2 years ago)

    Gravatar for L Young

    Are there any plans to reopen New Canada fund?
    It has been closed for quite a few years.
    Perhaps reopen to existing holders only.

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