Many investors think that the extreme swings in the stock markets are unprecedented. It only feels that way. A recent article in SmartMoney charted the extreme market moves made by the Dow Jones Industrial Average for every year going back to 1929. Periods of volatility similar to the one we are experiencing now were seen in the 2008-09, 2001-03, 1987 and 1973-74 bear markets. In fact, the chart suggests that it is the period of unusual calm such as the one we experienced between 2004-06 that is unusual.

The experience of investors in 1932 can help put the current volatility in perspective. The Dow experienced more than 120 days of intra-day swings of 5 percent or more. So far this year, we’ve had less than 20 days of swings of that magnitude. But 2008 was a pretty bad year with slightly less than 80 days experiencing 5 percent swings.

Source: How to Tame the Volatile Stock Market, SmartMoney.com.

This article has 9 comments

  1. Nice post. Will definitely include my round-up for this weekend.

    Recent market volatility is not really our new normal, nothing really new about it.

  2. Good message. It’s always so tempting to think that it’s differnet this time, but it’s not.

    The word “stock” slipped in one time too many in your first line.

  3. One interesting note in the linked article is that the volatility of the volatility is increasing, i.e., the market is showing increased kurtosis. If this keeps up, I guess we can expect more large daily changes (in both directions) in the future.

    Any idea on how we can make large sums of money off this, CC? I’m open to suggestions :)

  4. Thanks for the reminder, this “new normal” is not new at all!

  5. @My Own Advisor: Curiously, not many complain about volatility on a day like today :)

    @Michael: Thanks for catching the error. It was 1:00 AM when I finished writing up this post and I think it shows :)

    @Raman: Trading leveraged & inverse leveraged VIX ETFs. Now, we just have to make sure that we’ll be the ones who are making money. There are 30 ETFs covering this category.

    http://etfdb.com/etfdb-category/volatility/

    @Pacific: Even though many investors seem to think we are in a “new” normal, the current volatility ain’t something new at all. It is something stock investors should be prepared for.

  6. I hope that this is not 1932 all over again!!!! If so, it’s “freedom 78″ for too many Canadians without sufficient FI in their portfolios.

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  8. I didn’t know these stats about stock market volatility. Thanks for sharing! It definitely helps to know these things when you see those stock prices plummeting or jumping all over the place.

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