Learning To Use Volatility – Rather Than Get Used By It

Published on: April 27, 2013

Filled Under: Blog, Financial Essentials, Frazer's Top Ten Financial Lessons

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Failing to pay sufficient attention to relative levels of volatility is an all too common departure from intelligent long-term investing. This holds equally true with regard to individual securities, indices and entire markets. Why? Volatility is one of the most accurate measures of risk available in your “investor toolkit.” For example, if a stock is extremely volatile (read: “exceedingly risky”) but trading within a lower range than where your plan tells you to sell, it may nevertheless be the right time to get out. Similarly, if exogenous factors like corporate mergers, technological innovations or changes in management seem likely to cause a sustained period of price shifts, adapting your tactics to capture temporary upside can be a quick and intelligent way to profit. In either case, the key is self-awareness. Using risk is always preferable to being used by risk.

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