Fisher Investments Reviews How to Approach Market Volatility

Transcript

Ken Fisher:

People don't like volatility, but they don't understand volatility. I'm asked all the time, you got any tips for me on how to navigate volatility? Yeah. Eat your asparagus—maybe something you don't like. I really don't know what to tell you of what to like and what not to like. But the fact of the matter is, navigating volatility is a stupid idea. Navigating volatility implies that you know when the market's going to wiggle this way and when it's going to wiggle that way. And if you think you do in the short term, and if you really do in the short term, you don't need any advice from me at all.

But I doubt that you do, because if you did, you wouldn't be listening to this video—because you'd be focusing on what it is that you want to focus on. Because you know if you focus on those things, you could figure out over the next three weeks what the market's going to do. And if you can figure out what the market's going to do over the next three weeks, you don't need any advice from me.

Now here's my point, and I've said this many times in many different ways, whether the market is rising or falling 1%, 3% , 5% it's similarly volatile. I use the word similarly because of course a 5% drop requires a little more than a 5% rise to make up for the 5% drop. But they're similarly volatile. You follow that? Volatility is about movement relative to how much it takes to push the market a certain amount relative to the mass of the market.

The fact is, said simply, you do not get upside volatility without downside volatility. You can't have the one without the other. They're both there. It's just that the market wiggles along, it goes up, goes down. Part of its desire is to scare people out some of the time, just before it gives them a nice return up. In the long term, because the market is up overwhelmingly more than it's down —more than twice as often—adjusting for the same magnitudes and adjusting for the fact that it takes a slightly bigger rise to offset a prior, slightly given sized fall, adjusting for all that, once you get that the market is up much more often than it's down—and more than 2 to 1 you realize that volatility is your friend. And just like eating the vegetable on your plate that you didn't want to eat but your mom wanted you to, volatility—even though it doesn't taste good when it's downside volatility— volatility is your friend because without the downside volatility you don't get the upside volatility.

Let me point that out in ways that I do all the time. When we look at months, the months are up over 60% of the time. That's like a one and a half to one more than 60% of the time. When we look at calendars, it's more than two thirds of the time. When we look at years, it's more than 70% of the time. That's more than 2 to 1. When we look at 5- and 10-year periods, it gets ever more so to the point that we've never had a 20-year period with negative returns.

That return at 20-year periods since 1925 is a little over 800%. It's a pretty big return. If you cut out the downside volatility in the short term, you cut out the upside volatility that gets you to all of those returns, whether it's 1 month, 1 quarter, 1 year, 5 years, 10 years, 20 years. You're cutting out the upside. If you're cutting out the upside, you're cutting off your nose to spite your face.

And that's why I say to you, I don't have any tips for you on how to deal with volatility other than to eat your asparagus or broccoli or whatever it is that you didn't like that your mom put on your plate but she made you eat. It's good for you. The volatility is your friend, even though you don't like the way it tastes as it goes down. But it goes down not nearly as often as it goes up, and you like the up part. You just don't think of it as volatility. But without downside volatility you don't have upside volatility. It's just as simple as that. It's very hard for people to believe it.

They all want non-fattening chocolate cake. They all want pure good. No bad. They all want, they all want, they all want—and those are all fine things to want. But they're unrealistic to expect in life. You don't get the upside volatility without the downside volatility. It's just the way it is. Thank you for listening to me. I do appreciate it. I hope you found this useful, even if you found it a little bit like asparagus.

Voice of Ken Fisher:

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