Jamie Dimon provides some great insights in his Annual Shareholder Letters at JPMorgan Chase. In his latest letter Dimon makes a great point regarding the non-linear nature of companies and markets. Here’s an excerpt from that letter:
Volatility and rapidly moving markets should surprise no one.
We are always prepared for volatility and rapidly moving markets – they should surprise no one. I am a little perplexed when people are surprised by large market moves.
Oftentimes, it takes only an unexpected supply/demand imbalance of a few percent and changing sentiment to dramatically move markets. We have seen that condition occur recently in oil, but I have also seen it multiple times in my career in cotton, corn, aluminum, soybeans, chicken, beef, copper, iron — you get the point. Each industry or commodity has continually changing supply and demand, different investment horizons to add or subtract supply, varying marginal and fixed costs, and different inventory and supply lines. In all cases, extreme volatility can be created by slightly changing factors.
It is fundamentally the same for stocks, bonds, and interest rates and currencies. Changing expectations, whether around inflation, growth or recession (yes, there will be another recession — we just don’t know when), supply and demand, sentiment and other factors, can cause drastic volatility.
You can read Dimon’s latest shareholder letter here.
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