Sunday, January 30, 2011

The investor challenge: "buy on the dips" or manage volatility and risk

On Friday, several of the factors mentioned above drove the VIX volatility index up 24% for the day. The VIX, which is a measure of expected volatility of S&P 500 stocks in the next 30 days, is considered a measure of investor fear/uncertainty. As the VIX increases, it is assumed that investors are less sure of market direction.

MY TAKE: Some traders and investors seek “fast paced” opportunities when volatility rises above 20 (at the close on Friday, the VIX was 20.4). They thrive on volatility. However, a market where the VIX is trending up and breaking through 20 can be challenging for longer term investors. While a “buy on the dips” approach may work for some investors, I continue to encourage a more cautious short-term approach to the markets. This seems like a good time to research new investment ideas and wait for a bit more market stability.

No comments:

Post a Comment