Volatility erupting is not so predictable. It could start out of a housing crisis in China, a crash in iron ore prices, a shortage of semiconductors or even a hike in container freight rates. Any news that threatens the prospects of performing sectors can alter market perception suddenly and swiftly. The first thing that comes to our mind is how performing sectors are affected. Traders and front sitters tend to immediately sell out of their positions.
Naturally, such erratic responses to volatility, tends to cause sharp swings in stock prices of performing companies. Prevalent high levels of liquidity seem to be cushioning such falls and once again stabilising prices when clarity emerges. Effectively volatility is blowing up. This pattern is repeating in different parts of the market even while the market is taking support and going higher. Such trends are not uncommon in markets driven by sustained liquidity.
Investing in such markets can be tough for disciplined valuation centric investors. Choices have to be discerning, well thought through and backed by solid research. The good news is every market cycle keeps throwing out such opportunities before you.