March 15, 2001

When the markets turn south, the subject of volatility always arises. Weve heard and read, in recent days, much about the fact that it took about two years for the NASDAQ to climb from 2000 to 5000 and that it only took a year for the return trip. Some of the popular press reports seem to imply that the markets rate of decline was twice as fast as the rate of increase. This is blatantly false-the second leg of the round trip represents only a 60% decline from the peak. A two-year rise of approximately 150% is generated by a 60% annual rate of increase. So looking at the numbers it seems clear that the annual rate of decline last year was approximately the same as that of the rate of increase during the previous two years. In this sense, market volatility has remained unchanged.

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