Why Volatility Can Be Your Friend

07/24/2014 10:29 am EST

Focus: STOCKS

Jon Markman

Editor, Trader's Advantage

Instead of fearing volatility, investors should learn how to use it to their advantage, says veteran money manager and journalist Jon Markman.

SPEAKER 1:  Hi, I’m here today with Jon Markman, founder of Markman Capital Insight, and we’re going to talk about volatility, so Jon, what’s with all the volatility these days?  What are people to do?

JON:  Actually, volatility is extremely low.  It’s at multi-year lows right now.  It’s interesting because it has spiked up to – the VIX has spiked up from the 12, 13 level where it’s at now, up as high as 16 or 17 this year.  In years past, spikes of, like four points of the VIX would have been considered to be very mild, but because we’ve been in a low volatility environment, these spikes seem extreme, and they’re really not.

SPEAKER 1:  How do investors deal with this low volatility situation that we’re in?

JON:  I really think that investors shouldn’t shy away from volatility, they should actually embrace it.  They should look at volatility as an opportunity to buy the high quality stocks that they like on the cheap.

SPEAKER 1:  There was a lack of volatility that makes high quality stock attractive?

JON:  If you’re an investor, what you’re looking for all the time is to buy bargains, and so when stocks are just going up and there’s no volatility, you really don’t have an opportunity to buy into the high quality, high value names that you’re interested in, but when you’ve got a lot of volatility like we’ve seen recently, particularly today with the Dow down 110 points, really value investors, opportunistic investors really can take advantage of this kind of sharp movement to buy the stocks that they like.

SPEAKER 1:  When people see volatility increase, that’s time to jump in and buy some high quality stocks?

JON:  Well, you know, I have several letters; two options letters and a futures letter that helps people really understand exactly how high is too high and how low is too low, so when volatility is rising, we recommend people short the VIX up to a certain level, and we expect it to come down when anxiety abates, and by the same token, when volatility gets really low, we recommend people buy options or futures to take advantage of the expectation that volatility is going to be increasing.

SPEAKER 1:  Thank you Jon.  Thanks for joining us at MoneyShow.com.

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