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How large are market fluctuations?

How large are market fluctuations?

Fluctuations are represented in terms of volatility, and different types of investments experience different levels of volatility.

The answer here depends on which market you’re talking about. Generally speaking, the capital markets in fixed instruments, such as government bonds, are the least volatile. Market fluctuations of the price of commodities, small-cap stocks, and emerging markets are the largest, and can be as high as 30-40% per year.

You’d better be able to stomach the fluctuations of volatile investments; otherwise, you’re almost always doomed to lose the money. For example, among those who originally bought the shares of Microsoft when it went public, less than one thousandth of one percent still have it.

A modest $1,000 invested in Microsoft’s IPO in 1986 would have become approximately $30 million today. But how many people had the self-discipline and faith in the company to hold their shares through all the price fluctuations over the years?

Very, very few – which is a revealing statistic not just about everyday investors who may not have the stomach to endure so many fluctuations, but also about the more sophisticated investors among us, who were savvy enough to scoop up the IPO when it became available.

Studies suggest that everyday investors have underperformed the market by almost 6% on average in many time periods, and a huge reason for this is that they are likely to ditch their positions at low points and are slow to get back on board when momentum is moving upwards again.

Are the Markets Efficient?
What is Market Psychology?

Keywords: market statistics, market performance, volatility, emerging markets, Initial Public Offering (IPO), small cap,