That famous saying tells all: “Round and Round She Goes, Where She Stops, Nobody Knows!“
Volatility is a function of capitalism. There’s no doubt about it. If you don’t want volatility, you need to behave very conservatively. I, for one, do not want to keep my money under the mattress.
How Does One Avoid Volatility?
The short answer is: “You cannot.” But there is a longer, more optimistic, detailed answer.
How Do I Avoid Volatility?
The short answer is: “I cannot.” Most volatility, at least stock market-wise, is not up to me. I don’t cause it and I cannot control it. What I can do is live with it in a way that is as comfortable to me as I can make it.
Volatility And Me
My way of handling stock market volatility is just my way. It may not be right for you or anyone else. As previously mentioned, I am not a financial adviser. What I do do is, first, I recognize that volatility is the nature of the beat.
Second, I avoid things that appear to me to engender volatility. For example, I avoid technology stocks. I don’t buy on margin. I don’t use options. I don’t buy commodities. I don’t buy things that are hot and real popular in the moment. I don’t buy stock in IPOs. I don’t buy stock in companies that don’t make a profit. I don’t buy things I don’t understand. I don’t speculate.
Since I am a dividend investor, when I buy stock, I only buy stock in large dividend paying companies. In my opinion, large dividend paying companies by nature have less volatile stock.
Just because a stock pays dividends, however, does not necessarily automatically make it a good investment. I need to research the company and the stock, and try to find other opinions.
Owning stock in large dividend paying companies won’t protect me from volatility. What it will do, in my opinion, is shield me from the most extremes of volatility.
There are no guarantees. Tomorrow everything could go to hell. I have no way of knowing in advance what will happen, and neither does anyone else. Anyone who says they know is lying.
So, in face of multiple unknowns, how can I get anywhere and do anything? My view is that even in the face of all unknown and unknowable things, people will likely always need toothpaste, medication, insurance, fuel, food, and many other things. I look for large, stable companies that make these kinds of products.
Not The Max
Yes, I will not beat all other investors. There will always be people who make out better than I do. There will always be people who hit a home run with their stocks when I didn’t. That is not a problem for me, because I am not investing to beat out others. I am investing to provide an income for myself and family. That is my goal and that’s what I focus on. All the rest is noise. It might be loud noise, it might be occasionally interesting noise, but it is still just noise.
How do you handle volatility? Comment here.
The Bone Awl with Beaded Case is from the Gaigwu (Kiowa) tribe of Native Americans. The Kiowa tribe is now located in Oklahoma. The Kiowa language (Cáuijògà), is part of the Tanoan language family, and is still spoken today. Courtesy Cleveland Museum of Art.