Volatility Wednesday, October 7, 2020
Everyone has the brainpower to make money in stocks. Not everyone has the stomach.” — Peter Lynch

We believe there is no wealth creation without volatility! It is simply the “price of admission” that the market demands us to pay, yet there is so much effort on Wall Street that is dedicated towards minimizing volatility. These efforts are catered towards nurturing clients’ emotional well-being while creating an illusion of safety, but almost always come at a huge cost of reducing clients’ long-term returns. – Rowan Street Capital

If there were no booms and busts, no bear markets or wild bubbles, no unexplained sell-offs, and stocks casually drifted upward year after year, something inevitable would happen: Everyone would put all their money into stocks. Prices would rise and stocks would get expensive. And soon after they get expensive, history shows, volatility isn't too far behind, as an inevitable bout of bad news strikes and reality slams into expectations... pundits often say "people sell stocks when they're low." But it's actually the other way around. Stocks become low because people sell them. The reason there's market volatility is that some people get scared out of stocks, driving down prices. Volatility is a representation of people having a bad experience. That's why the pain, suffering, disappointment, and poor behaviour will never go away. It can't. – Morgan Housel

Occasional bouts of extreme volatility are a known and expected feature of the stock market. Predicting when they occur or what specifically will set them off is another matter entirely. Nothing in life is free – the price of being able to participate in the compounding nature of equity ownership is the occasional stretch of time with uncomfortable paper losses. Stocks have done very well over long periods of time precisely because of the “risk premium” they earn as compensation for these drawdowns. - Alphyn Capital Management
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