"October is one of the peculiarly dangerous months to speculate in stocks. Others are July, January, April, September, November, May, March, June, December, August and February." — Mark Twain

It is human behaviour that drives financial outcomes rather than fundamentals in most cases. As has been argued in this column earlier market volatility is driven by many factors, that appear urgent and lead investors to act. Hindsight always tells us that such moves over a short period of time do not impact to the overall asset return experience for investors that remain for the long term.

The recent news of escalation of hostilities in the middle east are indeed alarming. The increasing belligerence and military activities leading to hostilities and casualties is causing much concern regarding the eventual outcome. This conflict is not like the conflict in Europe and the outcomes are even more fraught with uncertainty. The combination of political news and the resultant impact on commodities cannot be ignored and will have some impact in the near term.

There are various other factors currently in a state of flux. The US elections in November are a significant pointer to how markets behave in the interim post the results. The Federal Reserve in the US is also at a crossroads and its commentary and the way forward for interest rates also are uncertainties that will determine the direction of the markets in the interim

So where do the markets go from here?

With various international geopolitical events becoming centerstage markets are likely to remain without significant direction for a while. We say this due to some counter forces visible currently. While on one hand we have the rising tensions in the middle east we also have, on the other hand, the prospect of a soft landing in the US, aided by a constructive Fed, that announced a slew of measures that gave some confidence to the market with respect to the direction of interest rates. A lower interest rate regime in the US, coupled with substantial stimulus in China is likely to keep the world economy chugging along, even if regional conflicts give rise to interim volatility in the markets.

What should investors do?

The nervousness among investors following the recent events and the possibility of more volatility ahead poses difficult questions for investors. However, it is needs to be repeated that these “investors” are not the same person. Each individual investor brings a unique viewpoint and expectation, and a generic answer would not suffice at this time.

• For recent investors into the equity markets sitting on sharp gains, the question to ask themselves is whether this investment was for the long term or was it opportunistic. If indeed these investments are speculative, and capital has been diverted from meaningful uses, it is clear enough that the world has changed dramatically and that the earlier expectation of roaring bull markets will need to be revised, at least in the interim.

• For investors who have entered the markets over a the past 2-3 years, this spate of volatility should not concern them and they should look at their longer term compounding average and ascertain for themselves that even if markets were to correct significantly from here, their average returns will still stay above average and would warrant no change in allocation, given that the allocation was risk tolerant in the first place.

• For new investors who have no exposure to equities and are committed to investing for the long term, any period is a good time to allocate and this point of entry for the next 10 years, if you are an India equities investor, will be still fairly lucrative