September 30, 2008
Historical Look at the Volatility Index
Here’s a monthly chart of the last 20-odd years of the Volatility Index. Readings of 50+ are rare and obviously mark extreme panic. Assuming you have cash and know what you’re doing, it’s probably not a bad time to buy good companies. May I suggest these ten:
- Altria (MO): ~$19
- Boeing (BA): ~$55
- Coca-Cola (KO): ~$51
- GE (GE): ~$23
- Johnson & Johnson (JNJ): ~$67
- McDonald’s (MCD): ~$60
- 3M (MMM): ~$66
- PepsiCo (PEP): ~70
- Target (TGT): ~$47
- Wal-Mart (WMT): ~$58
UPDATE: Many thanks to the people who stole this chart and linked back to the post. A pox on you bastards who stole it and didn’t link back. :-)
Cat: | Time: 9:09 am (utc+8)
September 30th, 2008 at 9:12 am
nks chairman - excellent capture and why a picture worth more than words
September 30th, 2008 at 9:15 am
How about Campbell CPB?
September 30th, 2008 at 9:30 am
@howard: You don’t see too many people recommending stocks here. :-)
@Brian: Nah, plus their soup has too much salt (tasty but bad for you).
September 30th, 2008 at 9:41 am
GE is mostly a financial stock, I wouldn’t come near it.
September 30th, 2008 at 9:42 am
How about some small cap recommendations?
September 30th, 2008 at 9:44 am
Campbell was one of only two stocks up today in the entire S&P 500. It’s seems the market is betting on many more folks dining in.
September 30th, 2008 at 10:08 am
I’m looking at stockcharts.com and the $VIX (new methodology) only shows data back to 1990; we hit a record high today, surpassing 9/11/2001 and 10/2002. However, the $VXO (original formula) goes back to 1995 and shows what you have up. How far are you able to go back? Can you post the 1973-1974 measurement (if there was one)?
September 30th, 2008 at 11:11 am
At the risk of repeating myself, I am going to point out, just like I did when you mentioned banks last year and the box ideas (before incorporating the longer trend) many of these stocks are in down trends. it is better to wait for them to build a base and start an upward move before buying them. regardless of what the vix says… man… i am almost repeating myself verbatim.
September 30th, 2008 at 11:55 am
I was just thinking the same thing: Where are all the people out there saying that this represents a great opportunity? Really haven’t heard any of those which is unusual for a big selloff.
Makes me wonder if this is it - at least for now.
September 30th, 2008 at 12:28 pm
Now that’s what I call a brave man.. Not for the timing but for ’sticking your neck’ and putting it out there on the blog again. If I remember correctly you’re a long term holder of a number of these, may I ask if you’re going to add to them at this point?
September 30th, 2008 at 1:44 pm
Chav -
It would be interesting if you could explain where GE is and where they are going - not just percentages of Income per division -
GE is probably one of the best investments for the future at these prices - along with Berkshire Hathaway
Both are in the short list of best Mutual Funds in the world.
just a little thought to express…..Love the Market
there are going to be good pickins when it crashes some more - we are too fast a society to drag out a depression for more than 12 months…..my best suggestion is to observe Fear - don’t have it!
September 30th, 2008 at 1:47 pm
PS. Let’s play “Am I diversified?”
1/3 cash, 1/3 GE, 1/3 Berkshire Hathaway
YES!!!
September 30th, 2008 at 3:34 pm
@Anthony: Small-caps have been relatively strong of late, but I’d prefer to look at the big guys in these dark days. I follow the old VIX methodology and have data back to 1986 (no earlier).
@Born2 & Greg: Yes, I could be disastrously wrong or “early” as they say in the biz.
@eyal: I’m just some guy in his pajamas and yes, I do already hold most of these, and yes I will add more assuming She Who Must Be Obeyed gives the nod.
September 30th, 2008 at 3:57 pm
One more thing I forgot, I don’t see any financials there. None of them appear sufficiently depressed AND long term robust enough to you? Like C, BAC, JPM, WFC etc. Of course the sector is in deep sh*t but the stuff that no one dares touch may also show some good opportunities long term? (a la “gotta buy them when they ain’t”?)
September 30th, 2008 at 4:28 pm
@eyal: I already own them all and the ones that haven’t disappeared only have to go up five or ten times for me to break even. :-)
September 30th, 2008 at 7:55 pm
Interesting list of stocks. Put me in the camp that it’s still a bit early to venture full bore into equities just yet. Now if you’re talking about maybe allocating 10%-15% of available investment funds, then I’d go along with that notion.
That said, I’d definitely stay away from the retailers and anything consumer discretionary for now, including TGT and WMT.
September 30th, 2008 at 8:04 pm
@Todd: Sure, trail your buy stop above the weekly high as things fall… dog food, milk, toothpaste and shotgun shells are the staples that everyone will continue to buy at Wal-Mart or Target, as they always have.
September 30th, 2008 at 8:40 pm
What about investing in the Chinese consumer over the U.S. consumer? I’m looking at CHL.
September 30th, 2008 at 8:54 pm
john: That’s a good idea and you can’t go wrong with China Mobile (they get $14 from me every month anyway).
September 30th, 2008 at 9:01 pm
List is boring.
I’m liking GOOG once the trend reverses.
WMT grew too fast. Tho, I like the novelty of WSI.
September 30th, 2008 at 9:01 pm
Poussée: Al I can say is that the $23 level on GE is a line in the sand. It’s there right now. If it breaks and continues lower, it’s good bye.
October 1st, 2008 at 5:17 am
I would add PG to this list. Pullback of 10% from its 52 week high..as recession proof as you can get..looking attractive.
October 1st, 2008 at 5:39 am
The VIX thing (from the first to the current) should not be be compared and is not dependable.
October 1st, 2008 at 6:18 am
Most of those are Dow or S&P, why not buy diversified lg, mid and small etfs on a gradual percentage basis with stops over the next two months?
October 1st, 2008 at 7:51 am
Shaun,
Thanks for posting a conclusion without a supporting argument. It really clarifies things. I can’t wait to read your blog.
October 1st, 2008 at 1:58 pm
@amir: I agree about PG though I wish it were a little cheaper (low 60s would be perfect) … it could have easily made my list if I did 15 names instead of ten.
@Hudson: I’m trying to pick things based on ever-elusive “value.”
October 1st, 2008 at 4:15 pm
There are over 100 real estate and financial stocks at, or near, new all time highs. Who has the &*##$ to buy them? Nobody. That’s why I have an algorithm that buys them for me. The survivors out of this mess will thrive.
October 1st, 2008 at 6:09 pm
@Eric: Good idea… surviving is the key. :)
October 1st, 2008 at 11:31 pm
Maybe take PEP off since KO is there and replace it with WMI. Everybody still needs to take out the trash.
October 2nd, 2008 at 12:14 am
Great chart! Do you mind if I post it to evilspeculator? Of course with a link to you.
October 2nd, 2008 at 12:38 am
CM: Definitely agree with Howard here, this picture not only worth a thousand words, but also a thousand idea for picking stock at the bottom.
I’d my sister transfer all her 401K, in the money market, to S&P500 Index fund. If it doesn’t work out, I will tell her to come here to look for you. ;-)
PS: long ETFs like SPY, QLD, QQQQ may not be a bad idea here.
October 2nd, 2008 at 12:55 am
from my perspective, the very fact that this is a 100 year storm makes the vix over the past 25 years irrelevant. for me data mining the past 25 doesn’t give you an edge.
if many of these companies broke their respective 25 and 30 year charts doesn’t that tell you something?
October 2nd, 2008 at 1:20 am
What is really amazing about the historical VIX chart is the recent ‘volatility’ in the volatility index. In the past year and a half there have been several whipsaws through the 15.82 - 48.40 range, whereas previous spikes returned to a generally continuous and well-behaved moving average line.
When the VIX undergoes these sorts of wild swings, does it really have any predictive meaning anymore as a predictive indicator? I mean if we use it as a gauge of relative market momentum from a given point to a future point 90 days out, and its 40 on tuesday and 20 by friday, does it really have any useful meaning in these conditions, other than to say: ‘expect whipsaw action!”
October 2nd, 2008 at 4:48 am
With P/E’s > 20 on the S&P 500 you should think twice before taking the leap (perhaps short term trades excepted). On the other hand if you believe earnings growth will magically rescue these companies in the upcoming quarters then by all means dig in. But if you have doubts - consider that declining profits are expected (you can see evidence now) and the impacts of the rising U$ will penalize foreign revenues further. Added together, at these prices, P/E’s will either need to escalate substantially or prices would fall substantially. Not a value proposition at this point in time, nor a prudent time with declining employment to be throwing your good money after bad. Patience. Wait until P/E’s are much subdued, do not get caught in this bear trap.
October 2nd, 2008 at 5:02 am
As for the VIX, it can exceed 40 during both bull and bear markets. In a bear market, it can peak several times as stock prices decline. If you buy on the wrong peak you may sustain whipsaw losses. Also in our present cycle, if you feel the economic outlook is bleak for the next year or so, you should not be surprised to see many more peaks above 40. I am not necessarily forecasting that but do not jump on the first train for it may be laden with dynamite.
October 2nd, 2008 at 5:18 am
I decided to watch GE this morning, noticed a change in the time and sales and went in at 23.30. Sure enough, the Buffett news came an hour later. Looks like he has the same idea as the Chairman. Day traders should do homework on regional banks like SOV, I missed a 20% gain on a bad stop loss level but there are a lot of good plays caught in this black hole trying to get out. Thanks Chairman :-)
October 2nd, 2008 at 5:57 am
Buffet has done the same thing his whole career. Buying wonderful companies at great prices. Value investing at it’s best. A good balance sheet is where you start your research and analysis.
October 2nd, 2008 at 6:40 am
In my mind Buffett is not investing in GS and GE, he’s simply betting that they would not go bankrupt.
October 2nd, 2008 at 6:41 am
@CM: I’m still kicking myself in the arse for not buying PG when they missed their last quarter. It tanked to low 60s and rebounded to mid 70s in 6 weeks.
What does the community think on DE? Is the global economy slowing down to the point where construction equipment from good ole’ DE is not being purchased as much?
October 2nd, 2008 at 7:01 am
Should add BRK.B to list. I wish they had a dividend. A nice addition to list would be the credit rating. Seems like that is more important than anything at this point.
October 2nd, 2008 at 8:05 am
It’s cheaper to fill up (your stomach) at McDonalds than it is to go shopping. That’s got to be good for business.
October 2nd, 2008 at 8:22 am
I’m on board with JJ listed up here. Nice analysis. My indicators say “The bear is still in the air”.
Disclaimer: The thing about indicators is that they only indicate not vindicate.
Deon
October 2nd, 2008 at 10:14 am
huh? the VIX spiked to 46.72 but on your chart it is graphed higher than 50 (blue line)
October 2nd, 2008 at 10:34 am
It’s a chart of the VXO, the original method.
October 2nd, 2008 at 8:57 pm
@Brian
You might be interested in Warren Buffet’s interview yesterday.
October 6th, 2008 at 11:49 am
Why all the fuss about which stock to buy?
I am new to this blog, but would you not just buy some puts on VIX? It’s a traders market anyways right now.
October 6th, 2008 at 3:26 pm
@Edward: I have no idea how to price those puts, or at least a worse idea than the guy who is selling them. :) As Dirty Harry was fond of saying, a man’s got to know his limitations.
October 6th, 2008 at 11:56 pm
I think you can just go buy a put for Dec 08 for like $4 per option. You have a pretty good risk /reward ratio in your favour.
You can agrue that the Vega might kill you, but the Delta should and will cover any hit from Vega.
October 7th, 2008 at 6:07 am
“Vix spiked to 46.” 46! Today was 58! 28 year high. What next? Hunkering down here and waiting for the end …….of October.
October 7th, 2008 at 6:42 am
@CM…would just like to thank-you for your list of ten. Haven’t been in the market since FEB08 but decided to buy each one when all on the list went negative basis the ~price that you listed. Today was that day as MO was the last to go at under 19.00. Buys were made concurrently at 2:15 today. Thanks.
October 7th, 2008 at 7:24 am
@Edward: The only Vega I’m familiar with is the Chevy Vega. :)
@Hudson: I look at old-style VIX (VXO) and it hit 69.42, so once again I’m “early.”
@Modernmind: You could trail the buy stop above the weekly highs as they fall, but I expect we’re close to a bottom now (though I’ve been terribly wrong in the past). Caveat emptor!
October 7th, 2008 at 9:02 am
It remains to be seen how early you are. John Murphy calls October a statistical “bear killer”. We may see two weeks of high vix consolidation ending right back here at these levels.
October 7th, 2008 at 10:31 am
Chevy Vega, that depreciates faster than the Vega I am talking about. Hahaha
October 7th, 2008 at 10:48 am
@Edward: Only if you’re rear-ended… or was that the Ford Pinto? :)
October 9th, 2008 at 2:48 am
INTERESTING GRAPH,, CAN YOU UPDATE WITH MONDAY 06 AND TUESDAY 07 DATA.. PLS MUCHAS GRACIAS… GABY… FROM MEXICO
October 9th, 2008 at 5:42 am
@Gaby: Here’s an up-to-date chart of the Volatility Index.