Emotions and Volatility

May 2017

Since the multi-year future outlook for the combination of stocks in a typical portfolio or index is unlikely to change much from day to day or even month to month, portfolio or index prices seemingly shouldn’t be very volatile.  The fact that they are characterized by volatility tells us that factors other than multi-year future outlooks for companies are at work on a regular basis.  Among these other factors are short-term swings in investor sentiment and momentum-based “investing” by individual and professional investors.  We welcome such influences on stock prices, as they help drive prices too high or too low, compared to analysis based on operational and economic factors.