One of the benefits of being older (and, on some days, feeling old) is that I’ve seen a few market cycles: the 1987 crash, the first Gulf War in 1990, the dot-com bubble and crash, 9/11, and the 2008 Great Recession.
When these market dislocations happen, I get concerned. But, I don’t panic. Financially, I get prepared to lean into market selling. As Warren Buffet says: “Be greedy when others are fearful, be fearful when others are greedy.” In 2009, this was fortuitous.
After the markets collapsed in 2008, I kept an eye on “the fear gauge.” Known as VIX, you can buy this security, which anticipates volatility. When a crisis erupts, VIX soars.
Specifically, VIX measures the consensus 30-day forward opinion of the market’s volatility. A VIX of, say, 15 means the market expects with 68% probability (or, one standard deviation for stats fans) that the market will go up or down 15% in the next month.
Yesterday, VIX closed at a whopping 65. The all-time high is 79.
When the markets collapsed in 2008 and into 2009, I kept an eye on VIX. At one point, it started to drop significantly, and I noticed that equity markets started to rally. So, I re-balanced my portfolio (my investment strategy here), selling bond index funds and buying equity index funds. Also, I invested in some 529s for my children’s college funds.
It turned out, luckily, to be a good move. I missed the market low by just two weeks, and markets started an 11-year rally. For every dollar I put into my kids’ college funds, I’m now at $2.50.
Here’s an interesting chart that shows how VIX reacts during financial crises, including the current one.
![](https://ritholtz.com/wp-content/uploads/2020/03/all_big_vix-1.jpeg)
So, keep an eye on VIX, and rebalance when you feel the markets are calming down.
Why do I write about this during a pandemic? It’s a pretty stressful time right now, with schools closing, store shelves emptying, and markets falling. But, I try to choose to see the bright side of things. And, this is one way for me.
The second way has been through puns.
Amazingly, even with #Covid19, Disney is still open! I think they should change the characters:
. Snow Blight and the Seven SARS
. Mickey Louse
. Peter Pan(demic)
. Beauty and V.D.
Other suggestions?#WaltDisneyWorld #Disneyland
— Jo Tango (@jtangoVC) March 11, 2020
Finally, yesterday, I had a gyro with fries in it. Totally epic.
Stay safe, everyone….
Jo,
Have you purchased any securities during the past few weeks? Where do you think this market is going…
I rebalanced towards equities March 25. I like the market long term, but we currently are in uncharted territory. It will take years for GDP growth to come back, as we are dependent on a vaccine.
I can appreciate that but according to recent media reports a vaccine may or may not be in the works. What if a vaccine isn’t forthcoming? The economy can’t be at a standstill forever. I don’t say that curtly but a lot of people are feeling the pain of not being to work.
There are multiple trials underway. When one is found, manufactured at scale and distributed are the unknowns.