Record Highs–Yet So Much Fear

brown and black spider on yellow wall

The Fear of Being Bitten Again

“Besides the last eleven months, there have only been five other streaks where the VIX remained elevated above 20 for at least six months.”

                                                                                                                                        Bespoke Investment Group

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These elevated levels in the VIX (CBOE Volatility Index–fear indicator) were signs of angst in the market that a segment of the investment community were fearful that something bad was about to happen … the fear of being bitten again. In the table below in only one case of the five occurrences observed was the S&P 500 lower than it was the day the streak ended one year later … the streak ending 6/4/01. That streak was followed 3 months later by the terror attack of 9/11/2001. The other examples provide positive results a year later with a standout performance on the streak coming out of the financial crisis.

                        Bespoke Investment Group

 

It is understandable how investors freshly thru the trauma of 2008/2009 would continue to be fearful, not trusting in bailouts and low interest rate environment policy prescriptions … just as many investors today have in clear view of the Covid crash last spring and are fearful of a reccurrence. 


Rearview mirror-gazing … understandable, not advisable

Focusing on bad (or good) past recent experience as a basis for decision making (Recency Bias) is not usually a good idea when investing. You know that old disclaimer, “past performance is no guarantee…” In the current situation when confronted with positive new information you look backward, replay the trauma tapes and refuse to seize on the positive new facts and opportunities for fear of being bitten again. In the case of the opportunities missed by the fearful in the past decade it was all about the fear that a repeat of the financial crisis was laying in wait, just around the corner.

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Disclaimer: The information presented here represents my own opinions and does not contain recommendations for any particular investment or securities. I may, from time to time, mention certain ...

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