Why I plan to remain calm in a sea of stock market volatility

The bear market is an opportunity for investors to take advantage of low stock prices to build their portfolios

Statistics are displayed on a screen at the New York Stock Exchange. On Tuesday, the S&P 500 fell the most since June 2020 after the release of hotter-than-expected US inflation data. AP

It’s been a grim year for retail investors, myself included. Whether it is stocks, bonds or cryptocurrencies, there has been very little to celebrate in 2022 amid soaring inflation, rising interest rates and global economic uncertainty.

When I log into my investment account these days, I find myself pining for last year’s bull market run, recalling the days when my portfolio was in positive territory and I was (fairly) confident about my financial security.

It’s the same with my cryptocurrency portfolio: it’s been nothing but a sea of red for the better part of this year as the sector (oddly) tracks the global stock market bear run.

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But, as medieval poet Geoffrey Chaucer wrote in his poem Troilus and Criseyde in the 1300s: “But at the laste, as every thing hath ende, She took hir leve, and nedes wolde wende.”

Loosely translated from Middle English, Chaucer’s words have become a popular idiom in the 21st century: “All good things must come to an end.”

While this sentiment offers little comfort to today's “mom and pop” investors, you can usually rely on billionaire Warren Buffett — considered one of the world’s most successful investors — to provide inspiration during times of uncertainty.

“If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes,” the billionaire, 92, once said.

Simply put, Mr Buffett is a strong proponent of value investing for the long term, a strategy that I also do my best to embrace. Crucial to this strategy is to avoid panic selling at all costs — no matter how tempting it may be as you watch the value of your portfolio fall during uncertain times.

In fact, financial experts say a bear market is a perfect opportunity to continue buying the dip to take advantage of low stock prices — which will eventually return to positive territory. I am also following this advice and continue to make monthly contributions to my portfolio.

History tells us that the average bear market lasts 289 days. At the time of writing, we are currently at day 243, which means that the bear market has only 34 days left to run its course — if the experts are correct.

Whether or not that will happen remains to be seen, particularly considering the current global economic uncertainty and the fact that the stock market can rise or fall on the smallest or biggest of news.

Case in point? This week's hotter-than-expected US inflation figure — which rose by 8.3 per cent in the year to August and shows that the cost of living is not falling as fast as the US Federal Reserve hoped, despite speeding up its quantitative tightening after repeatedly (and incorrectly) saying last year that it was “transitory”.

Like clockwork, though, investors were spooked by the news. Before the data was released on Tuesday, the S&P 500 was in positive territory. By the end of the trading day, however, it had plummeted by 4.3 per cent — its biggest fall since June 2020, a time when the world was in the depths of the Covid-19 pandemic.

The domino effect of the disappointing inflation reading spread to Asia. Markets on Wednesday morning opened in the red, leaving one Australian newspaper (admittedly a tabloid) to graphically proclaim: “ASX [Australian Securities Exchange] plunges $66 billion in bloodbath.”

“The fact that the actual inflation number printed a reading higher than the market expectations took everyone by surprise and created a massive event in the market,” Naeem Aslam, chief market analyst at Avatrade, explained in a research note on Wednesday.

“Traders are worried that the Fed will be immensely aggressive; they have already been sending many hawkish messages, but now the delivery and action could be even more hawkish. This is what creates significant chaos in the market.”

Meanwhile, Ipek Ozkardeskaya, senior analyst at Swissquote Bank, has warned that the S&P 500 could fall lower.

“Both the recession and the softer inflation catalysers are gone now. What that means for the market is: the S&P 500 could continue its journey to the south and we could see the index fall to 3,800 mark in the coming weeks,” Ms Ozkardeskaya said in her research note on Wednesday.

While some investors may find it difficult to ignore the gloomy projections and stop themselves from selling everything they own in a blind panic, Mr Buffett again comes to mind: “Remember that the stock market is a manic depressive.”

And with that, it’s safe to say that the swinging highs and lows of stock markets will continue as they have always done.

In the meantime, I plan to remain steady for the long term, continue to buy the dip and look to the future with quiet confidence. After all, what goes down must also come up — at least one day.