Right now this market is on a rollercoaster and I don’t think any of us are enjoying the ride. No matter how long or short the length of your investment horizon, days like today test our resolve to stay in the market. In fact, emotions like fear and capitulation can overcome us. The market measures and prices investor’s fear through the Volatility Index (VIX). In recent memory, when the market was most afraid in 2009, fear traded at $44.14. In 2011 when there was the fear that the Euro region would collapse, fear was at $42.96. Last September fear priced at $30.76. Today fear is priced lower coming in at $27.08.
What is wrong today is not fear in the markets but bearishness. While it may not feel like a difference there is an important difference from the market’s point of view. There is not a global financial crisis, there is a global growth slow down. The market is repricing growth not pricing fear. Because of this difference, we position portfolios differently. We are not invested in emerging markets such as China. We are concentrated in areas such as consumer staples and high quality dividend names. We are not invested in the high yield market. We have broad exposure in the bond market. We do have a fair amount of cash to try and buffer the swings but also to be ready for opportunities that will present themselves.