O'Dell Capital Management

A Daily Dose

The volatility of the stock market over the past several months can be credited mostly to the daily dose of current events. The market is very efficient at pricing in current news, both positive and negative. It would be interesting to see what would happen if the media took a thirty day sabbatical. Would the market volatility decline sharply if we were not exposed to daily headlines about European and U.S. debt? It’s very likely. Of course, burying our heads in the sand is not the answer but putting things into perspective and balancing our news sources to include the positive happenings is more prudent.

In volatile times, investors often seek ways to reduce the exposure to the downside risk. This often includes the temptation to move a large portion of a portfolio to cash until things improve on the economic front. The drawback with this strategy is that by the time things have improved (i.e. headlines become more positive), the stock market can be higher than the level at which the investor made the move to cash. If the investor re-enters the market at this point, they effectively sold low and bought higher. Repeating this strategy over time will lead to a significant deterioration of financial assets.

The level of risk chosen for an individual portfolio is best determined at the outset of the investment using some type or risk questionnaire or objective based assessment. Once established, the portfolio should be developed around this information and the chosen allocation should only be interrupted by a change in the investor’s objectives or a significant change to the investor’s financial situation. Short term market movements, lead primarily by current events, should not dissuade the portfolio strategy.

If the volatility in an investor’s portfolio reaches a level of constant concern and discomfort, it would be a good idea to meet with a financial advisor to revisit the investor’s long term objectives. It may be possible to adjust the allocations to reduce volatility while still maintaining a high level of confidence in reaching those objectives.

Investors hold no power over the daily dose of current events; therefore the focus is best concentrated on longer term results.

By: Rick C. O’Dell, AAMS

Rick O’Dell is a Financial Advisor with Raymond James Financial Services, Inc., Member FINRA/SIPC located at 858 W. Main St., Hillsboro, OH. 45133.

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Rick O’Dell and not necessarily those of Raymond James.