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How to Cope with Market Volatility

Ray Calleja

An article written by Ray Calleja: Head – Private Clients, MeDirect

Volatility and uncertainty is likely to remain high around the progression of the current pandemic of Covid-19. Hopefully, the rates of infection around the world will gradually begin to flatten out, however it looks like this will be a slow process. But everyone is hopeful that this could eventually lead to a return of domestic demand, corporate profitability and consumer spending.

That leads us to our subject today. Volatility and the individual investor.

It is never nice to see the value of your investments go down, but investing in the stock market is a way to try to grow your wealth over the long term, usually by investing in mutual funds, as we do at MeDirect, or for some of our customers who prefer to invest on their own by investing directly in companies by buying shares.

However, many seasoned investors see market volatility as a sign of opportunity rather than turmoil. Market volatility is one of the most reliable things you can predict because you can never tell what prices are going to do next week, next month or even next year. The one thing we know is that this is a process that will always happen – we just don’t know when it will occur. This process moves around more than the financial fundamentals and more than the underlying cash flows of the companies that we invest in.

And it means that at times there are these volatile periods where market prices will fall. Other prices will fall too such as commodity prices, residential property prices and so on. And as a consequence, people get scared. People feel the pain of losses more than they enjoy the pleasure of gains.

And here is why it is very important that you don’t over-react and sell stocks or mutual funds when they go down. That is the worst thing that people can do. As an intelligent investor you should be prepared for market volatility by buying assets that you think are worth more than the price you are paying for them. At times that means being willing to hold more cash so you can invest more when such circumstances arise. Knowledgeable investors view market volatility as an investment opportunity. A famous quote from Warren Buffet is very appropriate, here. He says that he likes stocks the way he likes his socks – to be ‘on sale’. Often, market volatility means lower prices. Most of the time in the stock market people want more of something when the price goes up and they want something less when the price goes down. Experts tell us that it should be the exact opposite. So generally, when prices fall it means you are able to buy stocks or shares (a portion of a company) at better prices.

This is therefore viewed as positive, not negative. Good investors prepare for the volatility by demanding good prices before they invest and that allows them to have capital or cash available to take advantage of the market opportunity.

So once again we re-iterate the importance that, during periods of market volatility, you don’t panic and you don’t over-react. You should not sell out your investment at the bottom. That is the worst thing that people can do.

Daniel Needham, Global Chief Investment Officer and President at Morningstar says “Our research shows that those who sell out at the bottom and then buy back, say, a year later, when they feel more comfortable, do much worse than those who stay invested. So, we think that the most important thing is to actually not do anything.”

The best advice if you do feel anxious is to speak to your financial advisor, who will be able to discuss your investment portfolio and see that it still matches your investment objectives and attitude to risk. Importantly, investors should make sure they maintain a diversified portfolio, whether by fund, geographical area, or type of asset (including the likes of shares, bonds, property, or cash).

It is important that you stick to your investment plan, that is why it is there. In the short-term markets are going to move around a great deal. And it is therefore very important that you take a long-term approach to investing.

Market volatility is normal and expected. History tells us this episode, too, shall pass. To date, every significant market fall has been followed by a rebound. We have had a sharp downturn, we just can’t predict how low the market will go or when it will bounce back.

Our takeaway message is therefore that at times of high market volatility or when prices fall, it is a time when you ought to consider adding more to your investments rather than taking them away.


The above is for informative purposes only and should not be construed as an offer to sell or solicitation of an offer to subscribe for or purchase any investment. The
information provided is subject to change without notice and does not constitute investment advice. MeDirect Bank (Malta) plc has based this document on information
obtained from sources it believes to be reliable but which have not been independently verified and therefore does not provide any guarantees, representations or warranties.
MeDirect Bank (Malta) plc, company registration number C34125, is licensed by the Malta Financial Services Authority under the Banking Act (Cap. 371) and the Investment Services
Act (Cap. 370).

The financial instruments discussed may not be suitable for all investors and investors must make their own informed decisions and seek their own advice regarding the appropriateness of investing in financial instruments or implementing strategies discussed herein.

If you invest in any of the products discussed you may lose some or all of the money you invest. The value of your investment may go down as well as up. A commission or sales fee may be charged at the time of the initial purchase for an investment and may be deducted from the invested amount therefore lowering the size of your investment. Any income you get from this investment may go down as well as up. This product may be affected by changes in currency exchange rate movements thereby affecting your investment return therefrom. The performance figures quoted refer to the past and past performance is not a guarantee of future performance or a reliable guide to future performance. Any decision to invest in a mutual fund should always be based upon the details contained in the Prospectus and Key Investor Information Document (KIID), which may be obtained from MeDirect Bank (Malta) plc.


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