In a volatile market, investors behave in 2 ways. They can either participate or they can stay away from the market. Historically, when it comes to investing, investors have been observed to follow their hearts rather than their brain.
The chart highlights two characteristics shared by investors over a 15-year period:
1) They have a herd mentality
2) They are driven by two emotions: greed and fear.
These trends suggest that the majority of investors think similarly. They buy when the markets rise (due to greed) and sell when the markets fall (due to fear). Unfortunately, these trends are harmful to long-term wealth creation.
What is actually required is consistency, regardless of market conditions. When no one is cheering on the markets, it is more difficult to maintain consistency. This is the time to cheer yourself up and stay invested. A legendary investor advises going against the herd: be greedy when others are fearful, and fearful when others are greedy. This is due to the fact that risks are higher in bull markets and opportunities are greater in bear markets.
To summarize, volatile markets are your opportunity to participate in long-term wealth creation. Running away at this point will undoubtedly be a missed opportunity.