Yesterday was a pretty traumatising day for people who had gotten used to very low volatility.
Share markets are meant to be volatile. The stock market doesn’t act like cash and bank interest where it goes up in a straight line. It’s volatility that gives us the best opportunities.
It should also be noted that share market valuations were always going to fall back at some stage. Rising interest rates means the risk-free rate of return is going up, so naturally shares aren’t going to be as valuable as before. But, this has been expected for years.
Those high p/e shares will have to work hard to justify their valuation.
Even so, a 3% fall in one day isn’t a great feeling.
Morgan Housel, a famous US ex-Fool, tweeted overnight “Today was the worst decline since the February decline you don’t remember anymore.”
He is completely right with what he’s getting at. If this quickly blows over then we’ll soon forget about it, despite it being scary in the moment.
Our ‘fight or flight’ response can make us want to avoid danger by selling our shares and ‘avoiding’ the carnage. The most likely result of that would be missing out on the recovery.
Yes, the iShares S&P 500 ETF (ASX: IVV) may have dropped a bit, but it’s only back to where it was a couple of months ago. If it had been flat this whole time would it be worth worrying about?
Many investment leaders have been telling us to expect lower returns for the coming few years. The higher the price is the lower the returns are.
It should be perfectly normal for share markets to move up or down by more than 1% in a day. We have gotten too used to low volatility. I gladly look forward to more opportunities being presented. I am very hopeful that Altium Limited (ASX: ALU) will fall to an attractive valuation.
The only reason this could be something to worry about is if it’s starting the next GFC. In which case, I’d want this top stock to play a big part in my portfolio for its defensive characteristics.
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Motley Fool contributor Tristan Harrison owns shares of Altium. The Motley Fool Australia owns shares of Altium. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.