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Market Volatility

Market volatility is a term used to describe fluctuations in share prices.  During any given period, shares can vary greatly in price.  Coping with this volatility and with the onslaught of financial information and news, is one of the toughest challenges that today’s investors face.  We are all bombarded online, on TV and radio and in print by information about investing and news coverage of the financial markets.  Much of what is reported is either exaggerated, wrong or simply not relevant.  Even the most sophisticated investors can find it very tough to maintain perspective in the face of these distractions.  However, investors will do well to heed Warren Buffett’s advice: “Emotions are contagious, and emotions have no business in investing”.

All this information may be useful for traders but if you are a long-term investor with a sensibly constructed portfolio, there is no good reason to pay attention to the short-term movements of financial markets.  Investors can be hurt by such volatility only if they are forced, by either financial or psychological pressures, to sell at untoward times.

Investors should judge the success of their equity investments by the operating results of the businesses and not by the daily price movements.  The market may ignore business success for a while, but eventually will confirm it.  As the legendary investor Benjamin Graham said: “In the short run, the market is a voting machine but in the long run it is a weighing machine”. This principle can be illustrated by Commonwealth Bank’s share price over the last ten years.  From 2005 to the end of 2014, Commonwealth Bank managed to increase its earnings per share and dividends per share by about 8% compounded annually.

Despite fluctuations in share price along the way, investors are often rewarded for holding quality businesses over the long term. To read more about this, please find attached the rest of above article written by our Investment Committee Chair, Fred Strauss.

Market Volatility


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