Last week, we saw some extraordinary volatility in the market, thanks to the troubles and uncertainty surrounding Lehman Brothers. The CBOE Market Volatility Index jumped 11.67 percent to 23.06 with the Nasdaq Volatility Index was up 10.99 percent to 26.66. Add to that the fact that the bear market is now well and truly at play. More details from Forbes.

For investors, the key is to hold your nerve but that's easier said than done. As The Wall Street Journal Marketbeat blog points out, it's a great environment for a trader with the agility of spider-Man and the mathematical chops of Steven Hawking, but for everyone else, it's just frustrating.

We can expect this to continue. As James Surowiecki reminds us in the New Yorker, we better get used to it. Volatility is significantly greater in down markets than boom markets. The reason? Traders, like gamblers, chase losses. If they've lost lots of money, it's tempting to make big bets to try and get it back.

Volatility might be just part of the market. But the worrying part is that if it goes on for too long, investors will stop trusting the market and park their money somewhere else. That's likely to raise the cost of capital and result in less innovation.