A Trader Betting on Market Turmoil

While betting against market upset has been “one of the longest-running and most profitable trades in recent financial history,” hedge fund manager Christopher Cole is “arguing with the passionate intensity of a true believer that this market calm cannot last.” This according to a recent article in The New York Times. Cole, chief of Artemis Capital (which manages about $200 million) says, “Optically, volatility is still very low, but fear is increasing.” The article cites a parallel between Cole’s stance and the sentiment preceding the stock market crash of 1987, “when investors were similarly lulled into believing that volatility would […]

Jason Zweig: Prepare Rather Than Worry About Increased Volatility

The low volatility currently seen in the market is causing concern for many portfolio managers, according to a recent Wall Street Journal article by Jason Zweig. Zweig says many investors share the view of portfolio manager Brian Singer of William Blair & Co. who argues: “The global market’s ongoing low volatility should be unsettling for investors.” And, while Zweig conceded that the VIX (CBOE Volatility Index) is “brushing lows set nearly a quarter-century ago,” he’s not convinced that the worry is warranted. He points out that the VIX is only about 30-years old and that stocks have “fluctuated in a […]

The Market is Calmer than it Seems

Last year’s Brexit vote and presidential election results upset the stock market apple cart, giving hope to hedge fund managers and mutual fund stock pickers who claim that underperformance has been partly because “stocks have moved in lockstep.” However, according to an article in last week’s Wall Street Journal, the argument doesn’t really hold water. The “frenetic trading” in the weeks following each of these momentous events has given way to “remarkably muted” swings in share prices, the article says, and adds up to “continued frustrations for traders who seek to exploit rising volatility.” While stocks have risen to record […]

Low Volatility Makes Chasing Yield Risky

In the current low-volatility, low-yield environment, investors are attempting to recoup lost revenue by betting that things will stay calm. This according to a recent article in The Wall Street Journal that says investors are “desperate to sell insurance” in the form of options to earn whatever premiums they can. Buyers of options insulate themselves against price swings while sellers are paid premiums as compensation for the risk of those swings. “Selling lots of options against unlikely events can generate a steady stream of income” which is enticing to yield-starved investors. The logic is illustrated through the example of home […]

Your Emotions and the Stock Market

A critical element in successful investing is “how you react to feelings of both discomfort during the market’s fear cycle and invincibility when markets are booming,” writes Marty Leclerc earlier this month for Forbes. During periods when share prices drop, he says, data shows that most investors want to end the discomfort, which is the “root cause of poor investment results.” Leclerc explains why investors react so intensely to market shifts: Our brains are hard-wired to avoid pain at all costs, which is why investors who rarely look at their portfolios “do significantly better than those who do frequent reviews.” […]