Market volatility continues, with more than enough catalysts; the seemingly endless plunge in oil prices and its growing impact on important global economies and trading partners; the up and down uncertainties in the euro-zone; the up and down uncertainties on when the Fed will begin to raise interest rates (in a few months or not until next year?), and so on.
As I have been saying for some time, it is not going to go away (until some of those situations are resolved one way or the other).
Volatility has a potentially troublesome history. The repeated losses by those traders trying to catch tops and bottoms, and the nerve-wracking ups and downs in investor portfolios, tends to move people to give up and withdraw from the market ‘until it sorts itself out’, creating a downdraft from either increased selling, or a lack of buying.
Volatility in markets that have been rising and then turn sideways with volatility continuing but making no further progress, ‘high level churning’ as Stan Weinstein used to call it, has often been a sign of a potential market top.
In the other direction, old-time brokerage firm founder Richard Wyckoff back in the early 1900’s, said the same thing in his memoirs about the emotional impact of volatility at market bottoms: “In a decline many will hold on hoping for a rally that will get them out at higher prices. But if they get a rally they don’t sell because the rally raises their bullish hopes again. But the whipsawing volatility at the bottom grinds them down and they do finally give up.”
So volatility is not something to laugh off. It can have an impact by itself regardless of whether surrounding conditions are bullish or bearish.
So far the volatility in the U.S. is not of the ‘going nowhere sideways churning’ Weinstein referred to, as it continues to follow a pattern of higher highs and higher lows, going somewhere but with nerve-wracking instability.
If you think it’s been brutal in the U.S., have a look at a few other global markets, in which the volatility is just as brutal, but unfortunately in a pattern of lower highs and lower lows.
It’s not just the volatility that is of concern, but the negative divergence between the positive U.S. market and so many global markets outside of the U.S.
“Failure to prepare is essentially preparing to fail.” John Wooden, famed former football coach.
Do we read enough or watch too much TV?
I’ve been intrigued by a number of books and studies over the last few years about the habits of very successful people, and the wealthy.
They invariably show that, although the wealthy come from a variety of backgrounds and have various levels of education, they have common attitudes toward opportunities, life, work, entertainment, and retirement (they’re not interested in it), that are quite different from most other people.
Two glaring differences are in the use of free time.
Television: The average American watches TV five hours a day, or 35 hours a week, almost equal to a full workweek. Those over 70 watch an average of seven hours a day. (Surfing the internet is replacing some TV watching).
The wealthy watch TV an average of less than an hour a day, and rarely surf the Internet. Their favorite free-time activity is;
Reading: Only 26% of Americans ‘like to read’. The average American reads fewer than one book a month, and each year 25% have not read a single book in the previous year.
The studies show the wealthy try to read every day, tend to listen to audio books when travelling, and on average read more than two books per month, while 86% reported they ‘love to read’.
Then there are the confessions of Warren Buffett and his long-time partner Charlie Munger.
Quoting from an article by Shane Parrish, Farham Street:
“Most people go though life not really getting any smarter. Why? They simply won’t do the work required.
We can learn a lot from Warren Buffett and Charlie Munger.
They didn’t get smart because they are both billionaires. No, in fact they became billionaires, in part, because they are smart. More importantly, they keep getting smarter. And it turns out that they have a lot to say on the subject.
Read – a lot.
Warren Buffett says, “I just sit in my office and read all day.” He estimates he spends 80% of his working day reading and thinking about what he has read.
Charlie Munger says, “You could hardly find a partnership in which two people settle on reading more hours of the day than in ours. If we hadn’t been continuous learners, the record wouldn’t have been as good. And we were so extreme about it that we both spend the better part of our days reading, so we can learn still more.”
When asked how to get smarter, Buffett once held up stacks of papers and pointed to stacks of books, and said “Read 500 pages like this every day.”
“Neither Warren nor I are smart enough to make the decisions we do with no time to think,” Munger once told a reporter. “We make actual decisions very rapidly, but that’s because we’ve spent so much time preparing ourselves by quietly sitting and reading and thinking.”
Food for thought?
To read my weekend newspaper column click here: The ECB Will Be a Big Factor in 2015′s First Half
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Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!
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