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Market Volatility: Lessons Learned

Market Volatility: Lessons Learned

February 06, 2018
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Last Friday, the Dow Jones Industrial Average lost 666 points and yesterday, it got rocked, losing nearly 1,200 points. 

The volatility is unprecedented.  Today we saw proof of why investors should avoid transacting in turbulent times, with emotions running high, when clear decision making is virtually non-existent.  The Dow moved in and out of positive and negative territory by 100 points or more, 7 different times today, only to finish with a 567 point gain. 

Is that an ‘all clear’ signal?  Probably not.  Historically, during periods of high volatility, markets will fluctuate until cooler heads prevail and fundamentals come back into focus.    

Yesterday, I noted that much of the wild swings, were a result of ‘algorithmic trading’ and  that the ‘robots’ took over.  Although it is wise not to overreact to volatility, there are lessons that investors can take away from it.  

Today we learned that certain, very risky investment vehicles – whose performance moves in the opposite direction of market volatility –  were also key contributors to these volatile conditions.  For most of today’s session, these investments were stopped from trading, but as soon as trading resumed, they immediately lost nearly 92% of their value before anyone could sell out.  These complex investment vehicles  should be avoided by the average investor, but, since they trade publically, could find their way into any portfolio. 

Investors may think they know what they own in their investment portfolios, but sometimes it’s not what it seems.  It is important for all investors to seek out competent advice from an independent investment advisor that has the skills to properly analyze investments.   

At Capstone we are independent advisors who, by law, are held to a fiduciary duty of loyalty to clients and must provide portfolio transparency at all times.  If you or someone that you care about have questions about investments, we can help.

Disclosure: (The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.)