A week of sliding prices that culminated in Monday’s vicious sell off highlighted the importance of having a plan in place to deal with market volatility. Tumbling portfolio values combined with a sense of panic in the market are a recipe for highly charged emotions. And it’s precisely at these moments that a checklist of rules can reduce the risk of making bad choices. With some share prices now rebounding, rash selling decisions in recent days could well have been avoided. With that in mind, it’s time to revisit some of the academic and institutional research into how investors can handle volatility. Here’s a survival checklist.

1. Face the beast of volatility

There is little argument that the main cause of Monday’s shock drawdowns was the market crash in China and confirmation that growth there is slowing. However, there is evidence that the volatility caused by this sort of uncertainty actually feeds on itself.

Back in October 2014, when the UK market was last in ‘correction’ territory, Ed Croft looked at some of the work on this subject by the preeminent Professor Robert Haugen. Haugen was a quantitative finance professor who spent considerable time examining the effects of market volatility. Among his observations was volatility begets volatility, which in turn makes market become excessively volatile - prices literally freak out.

To tackle this phenomenon it’s first worth considering your own time frames, diversification and risk appetite for investing in the stock market. Should you be doing it at all? Warren Buffett once famously said: “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” In other words, the stock market is particularly powerful when used a long-term compounding machine.  If you accept this then it’s possible to trade less, and incur fewer costs. Indeed, you could simply switch off from the periodic volatility by ignoring the market completely.

2. Make informed decisions

Michael Mauboussin, the Head of Global Financial Strategies at Credit Suisse is famed for his checklist approach to investing. In a 2015 paper called Managing the Man Overboard Moment, he offers guidance on what to do when one of your stocks declines 10% or more in one day. Ed took a detailed look at the paper here.

Mauboussin pares down the checklist to four key factors which he breaks down further using some proprietary Credit Suisse scoring. However, the…

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