In The Lonely Bull

We recently warned against rising volatility, but the last few days’ action still shocks in its ferocity. 

During times like this, investors ask what is the cause.  Sometimes economic or business fundamentals underlie the activity.  Not this time; this time it is structural.  Equity markets around the world have moved rapidly toward indexation; either in total market instruments or certain segments of it.  This is what ETFs are.

Investing in the total market is a bet on markets, not especially on investing in businesses.  As a result, market direction and activity become more important than business fundamentals.  This leaves markets vulnerable to piling-on when the direction changes.  A pull back gets exacerbated by individuals pulling their bets when they go against them.

Algorithmic strategies that try to capitalize on trends accelerate market moves.  When the music stops, look out.  All of this is a fact of life for today’s investors.

Good investors can take a structural deficiency like this and make it work for them.

This is what we do.

The great results after the financial crisis of 2008 – 2009 were set up during and directly after this period.  We are taking similar actions this time as well.  We do not expect this correction to be anything like the financial banking crisis, but it will provide opportunities; stay steady.

El Solo Toro

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