A Brief History of Volatility

For some time I’ve been planning a post about market volatility. Each time I think I’m ready, the current volatility makes a retrospective look appear redundant. Since ending 2008 at 8,987 the TSX has dropped to a low of 7,566 on March 9 and risen to a high of 10,714 on June 11. An amazing 41.6% bounce from the low to the high.

Rather than put it off any longer, I figure I’ll post the story of my portfolio for the period beginning January 1, 2007. Who knows what’s going to happen going forward? Not me for sure. The numbers here relate to my portfolio which is not necessarily a typical portfolio as it’s pretty much all Canadian all the time. I made the decision some years ago to dump the Investing 101 plan in favor of a Canadian portfolio, which I pretend, at least, to understand.

Some time in early 2008 I became intrigued by the near daily fluctuations in the value of my investments. I wondered what the results would be if there were only gains or only losses on the scale of the daily ups and downs. Because I track my portfolio with a personal accounting program I was able to turn the clock back one day at a time and review the daily values. Next, I developed a spreadsheet for the purpose of doing some calculations. I decided to look at the daily value of my investments back to January 1, 2007 as 2007 was the last normal year. I found some interesting figures. Interesting to me at least.

In 2007 the low point on November 21 saw my portfolio value down 6.22% from the opening on January 1.At the highest on July 19 it had risen by 10.18% from the opening value. Daily fluctuations? The total of all the down days represented 77.94% of the opening value while the total of all the up days was 76.14%. Yes, at the end of the year the total of my investments had fallen 1.8%. There were 133 days of gains and 118 days of losses. We all wish this was a bad as it would ever get. Right?

Now we get to 2008. the roller coaster ride to end all roller coaster rides. We hope! The low in 2008, on November 20 was down 40.38% from January 1. Yikes! The high for the year was on June 5, up to a modest 5.06% year-to-date. Now for some crazy numbers. The total of all the down days for 2008 was 165.71% of the opening number and the good days totaled 136.57%. Wild fluctuations! At the end of 2008, my life savings were down 29.14% for the year. Believe it or not, there were 126 up days and 126 down days for the year.

Interesting that the worst days in 2007 and 2008 were November 21 and 20 respectively while the best days fell on July 18 and June 5. Makes one wonder about the Sell in May and go away advice. Fall Out and Spring In might have been better advice for the past two years.

Things have been better in the first half of 2009. My value has been up as much as 16.79% while the at the low point it was down 11.08%. At the end of June it was up 14.72% but it’s given up over 5% in four trading days this month. As I’ve said before, this investing stuff is not for the faint of heart!