True, the markets were buoyed last week by the unexpected change of heart from the White House on Syria, but we suspect that those concerned enough about the Middle East to significantly alter their asset allocations last week feel no better (if not worse) about the situation today. In fact, given the way it has played out this week, the Middle East will continue to dominate the headlines.
In times like this, we are reminded of course that volatility is always in the eye of the beholder as the measuring stick utilized can quickly change one's perspective. For example, on a closing basis, last Friday was one of the least volatile trading days of the year, given the minimal change measured from the end of trading on Thursday, despite the fact that Mr. Putin's comments that day hit the U.S. equity markets hard, turning an early-morning advance into a big decline just minutes later. The selloff, which sent the Dow Jones Industrial Average skidding to a nearly 150 point loss, was short-lived, with the major market averages rallying back into positive territory before again pulling back to end the day near where they began. To further the point, the S&P 500 index actually closed last Friday with a gain of just 0.09 points, less than one-tenth of a percent.
We do not mean to suggest that investors simply ignore intraday gyrations, but as we work with a multi-year time horizon, we trust like-minded folks took Friday's roller coaster ride in stride. Alas, we wish we could have said the same about a turbulent 2011 as we know that the wild swings that year spooked many folks out of the market, even as the full year ended up as one of the least volatile in market history. Incredibly, from start to finish, the S&P 500 was virtually flat for all of 2011, even as there were daily swings of greater than 5% in both directions on more days than we may care to remember.
Truth be told, we like volatility, for without the market's gyrations, we would not be able to practice the art of value investing. After all, it is tough to buy low and sell high if there is little in the way of price movement.