At times of market volatility, a lot of investors feel the need to react in some way. That can be buying, selling — or going to the beach and forgetting all about it. But deciding such actions on the spur of the moment can have expensive consequences. That is why even with only a small amount of money to invest, I think it is important for one to have an investment strategy.
Such a strategy does not have to be complex. It can just be a few basic principles that an investor lands upon by reading about the subject and having some experience of their own. But having some sort of investment strategy helps me stay calm and think clearly even when the stock market is frenzied.
One simple part of my own investment philosophy is reflected in Aesop’s familiar fable of the tortoise and the hare.
The tortoise
Tortoise investors appear to move slowly. They can spend long periods of time without any activity in the stock market at all. That does not mean that they are idle. On the contrary, they may be busy researching and reading up on shares to buy. But often, they will just read.
In many cases, even if the tortoises do not come to the stock market, it will come to them. Tortoise investors who own dividend shares like Imperial Brands and Diageo are used to receiving regular passive income. Tortoise investors like passiveness — especially when they profit from it.
As a tortoise, if one needs to take so much time and energy to do something, it should be worthwhile. That is why tortoise investors ignore the noise of the market. They focus on making choices for the long term, calmly and rationally.
The hare
In contrast to the considered, long-term approach of the tortoise investor is the hare.
There can be some very quick profits as a hare. Whether it was piling in and out of dotcom stocks, or flipping meme socks like Gamestop and AMC, some hares have made a lot of money quickly amid market volatility. But hares like that are not really investors – they are speculators. Their successes and failures are about market timing and luck.
Such an approach can lead to sudden profits, but it can also lead to quick losses. The sorts of speculative shares the hare likes can move up or down in very unpredictable ways, disconnected from the underlying performance of the businesses concerned. That can make the hares nervous and lead them to make sudden, rash decisions that are costly.
It is also exhausting haring around. Hares feel the need to watch every market move because their investments are in speculative punts not carefully researched companies they are happy to buy and hold. So time they could spend relaxing is instead spent chasing every market move.
How I deal with market volatility
By investing like a tortoise, I can step away from the worry and noise of market volatility. Like the tortoise, my long-term approach to the stock market helps me stay calm. Instead of focusing on immediate events, investing for the long term also helps me take an optimistic approach. No matter how much volatility there is in the market, I can look forward to the future performance of well-run companies I own.