First, the nature of risk is that it’s unpredictable. And whether the cause of the turmoil is political, economic, health related, or some other nuisance, we know that the future, by definition, is unknowable.
Not long ago, the markets were deeply disturbed by the interactions between President Donald Trump and North Korean leader Kim Jong-un, and the potential for war between the United States and North Korea. Imagine having fallen into a coma in 2010 and awoken to see that as a headline.
Every once in awhile, and sometimes more often than that, markets go nuts. Investors (over)react to some random news, in an attempt to predict an inherently unknowable future, and everyone pays.
We call the market gyrations “volatility,” especially when the market goes down. I’ve noticed that when the market goes up, we don’t call it anything; we just go on about our lives as if markets going up is normal and to be expected, like Mr. Market owes us something.