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Love vol!

February 27, 2020
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Volatility is defined as a measure of dispersion around the mean or average return of a security. In plain speak, stock market volatility is generally associated with investment risk with wide ranging swings in price. Last week we saw the major US indices reach record highs and also marked the beginning of what has been a very volatile market.  While stock market volatility can be scary to some, for the disciplined and patient investor it provides opportunity.

 

Increased volatility is closely associated with increased fear in the market. Today we saw a dramatic draw down in markets and a sharp increase in the levels of fear. Baron Rothschild of the Rothschild banking family is credited with saying “the time to buy is when there’s blood in the streets”, although most credit Warren Buffet. Regardless of who said it, it is much easier said than done. Who knows where the bottom is or when we will see it. What I do know is that I am more comfortable buying today than I was at the beginning of last week at the all-time record highs. Sell into strength buy into weakness, that’s it. I am not suggesting to go all in, but it seems reasonable to nibble a little here and there.

 

Is it the Corona Virus, the momentum that Bernie Sanders has or more structural problems that is causing the market correction? Who knows, but we did have plenty of clues leading up to this market move, and the shrewd investor prepared accordingly.  Bond yield heading lower, oil market crashing and strength in precious metals to name just a few.

 

Who knows where we go from here. Will we enter a bear market or sever market crash? Will the Fed step in with emergency measure, and will it even help?  Good discussions for another post.

 

Discipline | Patience | Conviction

 

Michael