Posted by Brittany Landry on November 21, 2018
In light of stock price volatility, we wanted to share an excerpt from an interview with Chris Davis from Davis Advisors, a Boston investment firm.
“What are you telling investors about today’s market environment?
Chris: I think the most important point is that this is normal. The period of low volatility that we had experienced is what is unusual. It is amazing to look at the headlines that come out: “Stocks Plunging,” “Markets Tumbling” and “Bloodbath in Stocks.” What happened in early October wasn't even in the top 300 days of largest percentage movers. In other words, on average over the past 90 years, there have been three or four days a year in which the market has moved down by a greater percentage.
We've been in a period of unusually low volatility, which breeds complacency. I think we forget that volatility and corrections are the norm. They are an unpleasant but regular part of the landscape. On average, you could expect a 5% correction every 51 trading days. You could expect a 20% correction every 630 trading days.
We’ve gone more than 2,400 days without a 20% correction. You can interpret that data and say, “We are way overdue,” or you could say, “We would have said we were overdue when we were at 700 days, 800 days, and 1,000 days.” So the most important thing is not to try to predict when these corrections will occur, but rather to recognize that of course they will occur.
When pullbacks and corrections do occur, the media will overreact and use the language that I shared with you. As investors, we should welcome this—because volatility is when active management is expected to shine more. In an unusual way, this return to normalcy is something that we should welcome because active management may add more value.”
Wishing you a very Happy Thanksgiving!
Your Cornerstone Team