Kurtz, an American economic theorist, discussed the idea that it is the narrowing consensus of investor sentiment that is responsible for market volatility. In usual market conditions there is a balance of investor opinion. Some will believe world recession is just around the corner, as others will believe we are again set for double digit rises in property prices. Most people are somewhere between these extremes but the point is that we are well spread in our (usually) rational market beliefs.

The problem we have at the moment is a lack of disagreement about the future. We have all heard about the problems with sub-prime mortgage market in the US and we are all seeing billion pound losses scrolling across our news screens.  We have lost the balance of investor sentiment.

Beliefs tend to persist until people see a reason to change them. The US Government hoped to give people that reason with their recent $140Bn 'rescue package' to re-energise the American economy and surprising economists wit the biggest cut in Federal interest rates for 25 years, but the market sentiment didn't think it was enough. 

So what to do? Well first, let us remember what volatility means: unstable, changing suddenly, short-lived, unpredictable, and fickle. The propensity for movement up and down around a base point. That base point is market direction, which has been up for the last few years and may or may not be starting to turn downward now. A recession in the US will undoubtedly have ramifications around the globe but we do not know whether that is going to happen yet. What we do know for certain is that all the leading economic experts will be doing all they can to avoid it. Recession is not good for business so I am sure the world's largest stock market will be doing everything it can to pull itself up again too.

Some of you may have an aversion to loss and you may be thinking of cutting your losses and running right now. Remember, the number of shares or units you have acquired will remain the same and it is only the value of each that may have fallen.  The real loss you will suffer by selling now is if you sell below the price you paid for the assets.

Others may embrace risk and are thinking about getting into the market to take advantage of the lower prices available right now. Remember, investing lump sums in a volatile market will require precise or fortunate timing. Pound cost averaging (i.e. drip feeding your investments) may be worth considering. By dividing your lump sum investment into regular contributions you will effectively increase your chances of not wholly buying at the top end of share prices.

My advice is to sit tight, wait for the US to recover and for oil prices to be pegged-back. When this happens, the new found confidence will breathe new life back into the stock markets and investors will be able to buy good value shares.