Betting against stock market volatility is one of the hottest trades in the market.
It’s also one of the most controversial, with many pundits viewing it as increasingly vulnerable to a market blowup.
Legendary investor Laszlo Birinyi — who has nailed the eight-year bull market at every turn — is staying out of the fray completely. Having experienced considerable success simply trading on the benchmark S&P 500 index and evaluating stocks on an individual basis, the president of Birinyi Associates views the whole exercise as pointless.
In an interview with Business Insider, Birinyi discussed his view on CBOE Volatility Index — or VIX — while also covering such hot-button market topics as equity valuations, exchange-traded funds, the effect of politics on the market, and what important factor he thinks investors are missing.
Here’s what Birinyi had to say when asked about low volatility (emphasis added):
“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.
The VIX isn’t the fear index — it’s a measure of potential volatility in either direction. Yet for some reason, people have glommed onto the idea that if the VIX spikes, the market’s going to go down. 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. 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.”
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