Comments on: Why volatility means you should sell stocks http://blogs.reuters.com/felix-salmon/2010/05/10/why-volatility-means-you-should-sell-stocks/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: q_is_too_short http://blogs.reuters.com/felix-salmon/2010/05/10/why-volatility-means-you-should-sell-stocks/comment-page-1/#comment-14887 Mon, 17 May 2010 15:10:15 +0000 http://blogs.reuters.com/felix-salmon/?p=3761#comment-14887 ha, a value of vol of 41%? if you use this number, you mean you expect stocks to go up or down an average of 41% per year between now and when you retire. how in the world would you justify this assumption?

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By: TFF http://blogs.reuters.com/felix-salmon/2010/05/10/why-volatility-means-you-should-sell-stocks/comment-page-1/#comment-14850 Sat, 15 May 2010 01:35:08 +0000 http://blogs.reuters.com/felix-salmon/?p=3761#comment-14850 As an investor with substantial assets and 20 years until retirement (as well as hopefully another 30+ years beyond that), I remain entirely unconvinced that jumping in and out of the market is a sensible strategy.

Remember that you are investing in COMPANIES, not markets. If the company is sound, and you don’t need the money soon, you can afford to ride out the bumps. Better yet, treat a 50% plunge with the same excitement you would a store-wide discount day at Macy’s.

If you insist that people selling you quality companies at bargain prices is a BAD thing, then you probably ought not invest in stocks. Or bonds. Or real estate. Why fear volatility when you have a 20-year time frame?

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By: dWj http://blogs.reuters.com/felix-salmon/2010/05/10/why-volatility-means-you-should-sell-stocks/comment-page-1/#comment-14711 Tue, 11 May 2010 16:44:51 +0000 http://blogs.reuters.com/felix-salmon/?p=3761#comment-14711 Previous comments are sort of correct; volatility is not risk, though in the Samuelson model forward volatility is a full measure of risk. It requires not daily rebalancing, but a monthly horizon, due to the term issue. Long-term volatility is less volatile than the VIX.

The Samuelson share also assumes that the rest of your portfolio is in cash. If you’re mixing in long-duration bonds, so long as the correlation between stock and bonds (over the relevant term) is less than 1, you’re generally going to benefit from an increased proportion of stocks so long as they have an expected return higher than bonds.

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By: TwasBrillig http://blogs.reuters.com/felix-salmon/2010/05/10/why-volatility-means-you-should-sell-stocks/comment-page-1/#comment-14678 Mon, 10 May 2010 19:43:25 +0000 http://blogs.reuters.com/felix-salmon/?p=3761#comment-14678 Risk, as Buffett says, comes from not knowing what you’re doing.

If you’re an efficient markets guy, you’ll say the market is more volatile and risky so I should reduce my positions (as if someone fat-fingering an order is a fine example of the market reflecting all available information).

If you’re Buffett, you’ll say, there are a bunch of donkeys with fat fingers out there that I can take advantage of, so I can increase my position size.

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By: Ian_Kemmish http://blogs.reuters.com/felix-salmon/2010/05/10/why-volatility-means-you-should-sell-stocks/comment-page-1/#comment-14657 Mon, 10 May 2010 13:53:29 +0000 http://blogs.reuters.com/felix-salmon/?p=3761#comment-14657 Hmm, an arbitrary formula offered with no justification whatever, which depends on one unknowable statistic and one entirely arbitrary fudge factor. Yes, I certainly get the urge to entrust my financial security to that….

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By: DanHess http://blogs.reuters.com/felix-salmon/2010/05/10/why-volatility-means-you-should-sell-stocks/comment-page-1/#comment-14656 Mon, 10 May 2010 13:53:01 +0000 http://blogs.reuters.com/felix-salmon/?p=3761#comment-14656 Doh!

Using volatility as a way to decide whether stocks are a good buy is the living embodiment of all that is laughable about Efficient Market Theory.

Needless to say, your timing has been impeccable.

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By: Greycap http://blogs.reuters.com/felix-salmon/2010/05/10/why-volatility-means-you-should-sell-stocks/comment-page-1/#comment-14654 Mon, 10 May 2010 13:46:31 +0000 http://blogs.reuters.com/felix-salmon/?p=3761#comment-14654 Real-life return distributions are not stationary and probably not even ergodic, but it does seem that vols possess a mean-reverting property. At any rate, AR-type models provide the best fits. It follows that vol is not timescale-invariant and unless you think Samuelson wanted you to rebalance your retirement portfolio daily, you cannot just plug the latest VIX quote into his formula and hope to get a sensible result. So the smack-down is correct.

Secondly, the stability of bond returns is in part illusory because of the long downside tail risk that does not appear in daily or monthly bond returns even on an mtm basis. Many retail investors view their bond portfolios in accrual terms which further exaggerates this illusion. Even worse, their accounting is done in nominal terms when what they really care about is real dollars.

Finally, your last paragraph is completely nutty – any lottery winner could say the same. It just detracts from your argument, so why did you include it?

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By: Kurt_Osis http://blogs.reuters.com/felix-salmon/2010/05/10/why-volatility-means-you-should-sell-stocks/comment-page-1/#comment-14653 Mon, 10 May 2010 13:38:35 +0000 http://blogs.reuters.com/felix-salmon/?p=3761#comment-14653 Felix:

1) Risk is not volatility.

2) Even if vol were risk you mismatched the term structure of volatility to the term of the equity returns. The vix measures 30 day vol not 40 year vol.

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By: bkmacd http://blogs.reuters.com/felix-salmon/2010/05/10/why-volatility-means-you-should-sell-stocks/comment-page-1/#comment-14646 Mon, 10 May 2010 07:13:29 +0000 http://blogs.reuters.com/felix-salmon/?p=3761#comment-14646 May I humbly submit an offering to the “Felix Salmon Smackdown Watch”:

http://mbablogreader.blogspot.com/2010/0 5/5092010-on-peculiar-advice-of-mr-salmo n.html

Regards.

p.s. nice link to your blog in this weekends NYTimes magazine….

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By: MarshalN http://blogs.reuters.com/felix-salmon/2010/05/10/why-volatility-means-you-should-sell-stocks/comment-page-1/#comment-14644 Mon, 10 May 2010 06:04:34 +0000 http://blogs.reuters.com/felix-salmon/?p=3761#comment-14644 Clearly, Felix, you should join CNBC and take over Cramer’s job.

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