VTS Community,

With markets so calm lately it’s rare I even get to talk about them.  That’s fine though, there’s plenty more to say about the exciting world of investing and I’ve got a to-do list that grows by two topics every time I scratch one off, but yesterday’s market action was certainly interesting, and to be honest I welcome it.

These markets could certainly use a little excitement to break this cycle.  The VIX spiked yesterday and the front end of the VIX futures term structure nearly went flat which pushed us into our IEF Bonds position.  Exciting times!  Well, probably not but it’s something anyway…

The big story this year is no doubt the incredibly low volatility environment we’ve seen.  To update the charts we’ve been tracking for many months here, the VIX has never been this low for this long.

Blue is 2017  🙂 

 But more importantly, realized volatility on the S&P 500 has also never been this low.   Remember the VIX Index is what market participants are expecting to happen, but S&P 500 20 day historical volatility is what has actually happened so it’s arguably the more important one to look at.


 And lastly, since we did actually break the all time record for longest S&P 500 streaks without even a 3% correction, here’s that one too:



So what happened yesterday?  Well by the end of the day, actually not much because things partially recovered.  But as a long term conservative investor, you know I have to issue my usual warnings in hopes of educating people so here goes.

From the previous close to yesterdays intraday low, the S&P 500 was down -0.98%.  No major news, just a run of the mill small down day in the markets.

The XIV however was down as much as -10.11%.  Something I’ve been talking about quite a bit this year is how much more the XIV is moving compared to the market.  And yesterday once again we see a Beta of over 10.  Long term average Beta of around 4.25 which is risky enough already, but this year it’s hyper sensitive to any moves at all.

When it’s going up and people are holding it everybody feels like they are the smart money.  But something that investors consistently ignore is the exact opposite can also happen.

There is a massive disconnect this year between how many people are willing to hold the XIV, which is moving at 8-9x the speed of the S&P 500, compared to how few people are willing to hold triple leveraged equity products which only move 3x.  


And the 3x leveraged equity products have better long term performance than the XIV does.  Higher return, lower drawdowns, better risk adjusted measures.  Yet not many people dare hold them right now.  But XIV, sure bring it on!

I’ve not seen any tweets this year about anybody talking about the triple leveraged equity ETFs.  People just seem to inherently know how dangerous they are.  Of course right, triple leverage can go off the rails quickly.  Yet tweets about XIV are coming in hundreds per day. 

But why?  Because it’s called “volatility” people think it’s less risky?  The truth is it’s not, but apparently people think it is.  Maybe too many articles talking about all the big money to be made, and not nearly enough on the risks. 


I’ve been investing in volatility for nearly a decade now and I plan to be here for many more.  In my opinion the reward is well worth the risk and volatility products and options trading will always play a role in my diversified portfolio. 

But if you were to ask me the single biggest reason why 90% of active fund managers and investors out there can’t beat index funds in the long run, it’s not because they can’t make enough money when markets are going up.  It’s actually because they lose too much money in bad times.


I view that as my primary job.  To make the decisions that the majority of the investment world consistently doesn’t.

To NOT swing at every pitch, and to preserve capital when the markets are flashing warning signs. 


Now we know why fund managers swing at every pitch no matter the risks.  First, because most don’t need to report performance so nobody knows who’s making what.  Secondly, they get paid to get clients invested and keep them allocated.  And lastly, there’s little consequence when things go badly because they just point to the bank next door and say see, they also lost money.

But unfortunately the reason retail investors find themselves swinging when they shouldn’t is usually due to lack of experience.  That darn buy high sell low feedback loop…

Hopefully I can do my small part to help in that regard.  We will always invest in volatility, options, and equities.  The reward is worth the risk, but we’ll do it with eyes wide open.


Current VTS Total Portfolio Solution Allocations

25% VTS Tactical Volatility Strategy

50% VTS Tactical Balanced Strategy

25% VTS Iron Condor Strategy

VTS Conservative Vol Strategy  –  Optional replacement for lower risk tolerance investors


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