Stock markets are increasingly volatile: Here's what you should do

Don't panic for a start

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 27, 2015 1:51 pm AEST

The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has jumped around a fair bit in the past month or so – as you can see from the chart below.

S&P-ASX 200 volatility — *Source: Google Finance*

Most noticeable is how the markets have sheared up or down dramatically particularly in more recent days.

Australia and New Zealand Banking Group (ASX: ANZ) CEO Mike Smith and Commonwealth Bank of Australia (ASX: CBA) chief Ian Narev both recently warned that high-frequency trading (HFT or ultra fast buying and selling of stocks) was causing greater volatility in the markets.

"The issue with high-velocity trading is a bit of a problem, I think, for the longer term because it does push the market very, very dramatically both ways," said Mike Smith.

"[There's been] quite jittery markets and they tend to be reacting pretty quickly to little bits of news," said Ian Narev. "When you overlay that on the sort of level of algorithmic trading you've got in the market, that can exacerbate effects."

For long term investors, it's both an opportunity and a curse. It means share prices are likely to be pushed down further than their real value, while prices were also likely to overshoot at the top.

Foolish takeaway

Investors need to get used it – because HFT is here to stay. Patience is one your greatest advantages over the rest of the market – make the most of it.

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