FEATURE — A visitor to my office asked if I thought the stock market was still a good place to invest given all its “recent volatility.”
This frequent question carries with it the inference that there was once a time when the stock market was not volatile. When I first became serious about investing the Dow Jones Industrial average was in the 700’s. In the many years since I have observed that short-term volatility has been the norm, not the exception.
I also noticed that during those same years, the real estate markets saw significant price fluctuations as well. The price of oil, gold and other commodities have risen and fallen in numerous cycles and even bank CD rates have ranged from over 20% in the early 80s to nearly 1% in the past few years.
This volatility is not just true of investing. In politics, weather, international affairs, and even our own personal health, we see that short-term change, dramatic at times, is common and quite normal. The stock market does not have the corner on volatility. It is the very makeup of the world in which we live.
The question then is not whether we should be investing, given this constant volatility, but why do some assume that volatility itself is a bad thing? We should remember that in investing, and in life, short-term volatile trends which may provide us with opportunities, also tend to smooth themselves out over time. If we get the flu we don’t assume that the rest of our life will be miserable. If a rainstorm floods our town we don’t cancel all future outdoor activities.
If our team is beat in the playoffs we don’t stop watching sports. (OK I stopped watching college basketball when Jerry Tarkanians’ Runnin’ Rebels got beat by Duke in 1991, but that’s a story for another day.) Even in politics, we don’t give up just because our party lost the election. We know that over time these things tend to average themselves out.
In 2010 a sweet lady named Grace Groner died at the age of 100. Grace was an orphan at 12 and was raised by a kind family who took her in. After graduating college, she went to work for Abbott Labs as a secretary until she retired. While a secretary at Abbott, Grace saved up her wages until she was able to purchase three shares of Abbott stock for $60 per share in 1935. Her total investment was $180.
When Grace died she left her Abbott stock to the college she had attended in her youth. In 75 years those three shares of stock had grown to over $7,000,000 in value. A review of Abbott stock during that time shows that it was no less volatile than the turbulent stock market it had been a part of.
In fact, if Grace had paid attention she may have sold her stock out of fear many times. But Grace ignored the volatility and let the stock run its course through the good and the bad. Her story is a reminder that with investing, and with life, time has a way of smoothing over the frequent storms. If we grasp the big picture, the normal volatilities of investing, and life, can work to our advantage.
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