How To Think About Bear Markets
Until quite recently, 2014 had been a very quiet and calm year for the stock market. With the exception of a few days in early February, the VIX had never spent any time above 20. As August ended, it stood at just under 12.
However, volatility has a nasty tendency to spike. And as AQR’s Cliff Asness explained, it can also be sticky: “When the market is volatile your best guess for next month is that it will be more volatile.” During September, the VIX began to creep up, ending the month at 16.3. Then, on Oct. 15, it spiked to above 31.
One thing I’ve learned over the years is that there’s a perfect correlation between a rising VIX and the volume of forecasts in the financial media predicting doom, as well as the number of calls and emails I receive from nervous investors and advisors.
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