“Everyone has the brain power to make money in stocks. Not everyone has the stomach,” once observed legendary fund manager Peter Lynch. His point was that most people don’t have the stomach – or emotional stamina – for sticking to an investment plan when market conditions get choppy.
What makes 2018 remarkably different from the recent past is rising stock market volatility.
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Stock market volatility ain’t what it used to be. And unlike recent years, the VIX, a benchmark of volatility in S&P 500 stocks, (NYSEARCA:VOO) has been consistently up in 2016.
The chart below illustrates how market conditions and stock market volatility or VIX (ChicagoOptions:^VIX) have dramatically changed over the past 52-weeks.
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Stock market volatility is often wrongly portrayed by the mainstream media as an enemy. In reality, it’s not.
First, prudent investors use volatility (ChicagoOptions:^VIX) as an effective tool to measure the stock market’s psychology. Why? Because excessive bullishness or bearishness in market prices is instantaneously reflected in the VIX.
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Do good performing investments always start out good? The short answer is not necessarily.
As proof, we showed ETFguide’s readers a real life example in the June 2015 issue of the ETF Profit Strategy Newsletter. In that issue, we shared an incredible story about a 72-year old investor who converted a $95,000 investment made in two stocks (NYSEARCA:SCHB) into $11.5 million.
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Stock market volatility is frequently portrayed as an evil force that all investors should strive to avoid. However, embracing volatility (ChicagoOptions:^VIX) rather than avoiding it can be extremely lucrative.
On 12/17/14 we told our subscribers the following via our Weekly ETF Picks:
“The VIX has been on a tear,
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