Tags: laszlo birinyi betting on the vix is a quick way to lose money

Birinyi: Betting on VIX Is 'Quick Way to Lose Money'

Birinyi: Betting on VIX Is 'Quick Way to Lose Money'
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By    |   Monday, 18 September 2017 12:03 PM

Legendary investor Laszlo Birinyi warns that betting against stock-market volatility is a recipe for investment disaster.

The president of Birinyi Associates suggests simply trading on the benchmark S&P 500 index and evaluating stocks on an individual basis, and not following the apparent investment fad of trying to outsmart the CBOE Volatility Index — or VIX, a measure of expected stock volatility also known as the fear index.

“The VIX isn't the fear index — it's a measure of potential volatility in either direction,” Birinyi explained to Business Insider.

To be sure, President Donald Trump was expected to usher in a wave of market volatility, but from the start, the opposite has been true. The day after his election in November, the VIX dropped about 25 percent lower than its daily average since 1990. 

The VIX has been more active in the last month, Bloomberg explained. The index moved more than 30 percent on Tuesday as unease builds around North Korea and as the U.S. prepares for its second major hurricane of the season. The gauge is still on track to post its lowest annual average on record.

“Yet for some reason, people have glommed onto the idea that if the VIX spikes, the market's going to go down," Birinyi said.

"No, when the VIX spikes, it means the market could go either up or down a lot. If you go back to the bottom in 2009, the VIX was telling you that there were going to be another two years of a bear market," he said.

"It tells you about volatility, not direction. To me, it's just another vehicle. It's totally meaningless with regard to the future of the market. In an uninteresting market, people have found that this is something you can play. It seems like VIX ETFs and [exchange-traded notes] are a quick way to lose money," Birinyi said.

"Like so many things, that is a characteristic of a market. When people say to me that the market hasn't had a 1% run in a certain number of days, that tells me just that. It doesn't tell me anything about tomorrow or what's going to happen,” said Birinyi.

Meanwhile, investor reactions to North Korea's recent nuclear antics show stock market drops, spikes in volatility, gold and the Japanese yen — typical “risk-off” moves — often reverse within a few days, sometimes within hours, Reuters reported.

For the first three nuclear tests by the North, the VIX snapped back to previous levels within two days. The VIX stayed elevated longer in the wake of the 9/11 attacks than North Korea’s latest nuclear test.

The highs the VIX hit on 9/11, the collapse of Lehman Brothers, Brexit, the 2016 U.S. elections, and the 2015 Greek debt default are all higher than the levels seen on four out of the total of six nuclear tests by North Korea.

(Newsmax wires services contributed to this report).

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Legendary investor Laszlo Birinyi warns that betting against stock-market volatility is a recipe for investment disaster.
laszlo birinyi betting on the vix is a quick way to lose money
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2017-03-18
Monday, 18 September 2017 12:03 PM
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