There's Always a Bull Market in Fearmongering

Volatility has declined very sharply, so quite naturally, pundits suggest that investors are complacent and conditions are ripe for a nasty surprise. Such warnings deserve harsh criticism.

First, volatility should be down, given the performance of the economy and markets. Second, focusing on volatility encourages short-term thinking, which is extremely harmful to investors trying to achieve their long term goals. Third, it is entirely useless to warn against a potential market decline when the warning is provided without any kind of time framework.

High volatility is a normally occurring, yet unpredictable, event, at least insofar as timing is concerned. Market declines of 10 percent occur almost annually, and even multiple times within a calendar year. This is simply within the normal range of historical volatility. Yet when it happens, some pundits go wild, suggesting the drop is just the first leg down of a much larger decline. In fact, several such declines have occurred since March 2009, yet the market has risen more than 200 percent off that low. When the decline proves to be temporary, such negative market commentary disappears temporarily, waiting for the next opportunity to warn of another bout of market volatility. Or, they forecast that the decline in volatility demonstrates that investors have become complacent and vulnerable.