The recent stock market problems stemming from issues in China and a general slowdown have sparked massive volatility over the last few months with the Vix index peaking at 40 in late August (almost 4 times its level just days earlier). We can speculate whether the sell off was a result of genuine economic concerns, or a more general market correction. Time will tell.
I met with one of my clients a couple of weeks ago, who made the comment that it is only the traders that make money at these times. Market tensions are clearly exacerbated by the short term outlook of many institutional investors like pension funds. Market makers clearly profit when volatility is so high and trading is driven up.
It struck me that if more investors just simply remember that they are invested for the long term, and stick to the tried and tested principles of being fully diversified, adopting a sensible portfolio structure and keeping costs and emotions under control then they cannot go far wrong. Short term market volatility will regularly appear and should be kept in proper perspective.
Long term investors who stick with a sensible investment policy will not profit from market volatility, but will also not get dragged into the perils of market timing either.