700-point drops. 900-point rebounds. More than anything else, huge market swings -- both up and down -- have given investors the biggest headaches over the past year. Yet if you're hoping that those ups and downs are over, think again, because market volatility isn't going anywhere.

During the bull market from 2003 to 2007, investors got complacent. Not only did stocks rise substantially, they did so in a relatively calm manner, largely without huge shakeouts along the way. The trading environment rewarded buy-and-hold investors, because those who sold along the way hoping to buy back in after a long-awaited correction found themselves foiled again and again.

Now, though, you're seeing more and more claims that buy-and-hold is dead. Regardless of whether that claim proves to be true, all it will take to make the markets keep bouncing up and down is enough people abandoning long-term investing in favor of short-term trading.

Grabbing profits
The key to increasing volatility lies in profits -- that is, the paper profits that investors once had but then lost in the declines since late 2007. Consider some of these widely held stocks:


Gain, 2003 to 2007

Gain, 2003 to present

Agilent Technologies (NYSE:A)



Marriott (NYSE:MAR)



Starbucks (NASDAQ:SBUX)



Tiffany (NYSE:TIF)



Ingersoll-Rand (NYSE:IR)



Electronic Arts (NASDAQ:ERTS)



Motorola (NYSE:MOT)



Source: Capital IQ, a division of Standard and Poor's. Data as of Jan. 30.

Those who invested in these stocks near the lows at the beginning of 2003 were rewarded for their willingness to buy in after the huge declines of the tech bust. Yet those who followed the buy-and-hold strategy to the letter saw their profits largely disappear -- or even turn into losses.

Once bitten, twice shy
Experienced buy-and-hold investors understand that losses are inevitable. It's because of that knowledge that they don't necessarily get as excited about their paper profits as other investors do. The highs and lows along the way don't matter -- only where you bought and what the price is when you finally decide to sell.

But many investors don't have that attitude. They want to see regular gains, year in and year out. The lesson they'll learn from the recent bear market is that they need to actually sell shares in order to lock in profits. So when they start to see gains fade away on stocks they have profits on, they'll dump them in a hurry to preserve their profits -- even if those profits are only a fraction of what they had originally hoped to earn from their investment.

Weak hands lose
Moreover, it's those jittery investors who could potentially make the markets more volatile. If they time their stock sales badly, then they'll feel a ton of pressure to buy their shares back as they watch the price go up and realize they've missed out on profits. On the other hand, if they get lucky and sell right before a further drop in their shares, their good fortune could lure them into overconfidence and make them want to trade more.

Either way, the increased activity that these investors-turned-traders generate could make share prices bounce up and down more violently. If inexperienced traders all react to particular news in the same way, it will exacerbate the market's reaction. And while traders may make good money from this for a while, as day-traders did during the Internet boom of the late 1990s, most short-term traders will find themselves on the short end of the stick.

In contrast, buy-and-hold investors don't create volatility at all -- they just watch as traders play their short-term games, and wait for the time years down the road when they'll take their profits.

Stay strong
Luckily, even long-term investors can profit from volatility. After all, those wild price swings create unimaginable opportunities to buy shares cheaply. At the end of the 2002 bear market, long-term shareholders were able to jump on those opportunities to pick up great bargains. You'll find similar bargains today.

Calling buy-and-hold investing dead is premature. Yet while you can expect market volatility to remain for a while, that isn't entirely a bad thing -- if you're prepared for it.

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Fool contributor Dan Caplinger is getting used to volatile markets. He owns shares of Starbucks. Starbucks is a Motley Fool Inside Value pick. Starbucks and Electronic Arts are Motley Fool Stock Advisor selections. The Fool owns shares of Starbucks. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy holds steady in a bumpy world.