The J curve illustrates why investing in periods of high volatility has been compared to “catching a falling knife.” The risk of short-term loss is significant (and bottoms at about the 4-month point). Thereafter, the advantage goes increasingly to investors who bought during periods of high volatility.
There’s a reason why the British financier Nathan Mayer Rothschild is reputed to have said “Buy when there’s blood in the streets, even if the blood is your own.” It may be true that all future market crashes will be viewed as risks when they are happening. But it’s equally true that they may appear, in retrospect, as opportunities.
This article was written by Craig Lazzara, global head of index investment strategy, S&P Dow Jones Indices.
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