The other day, I came across this blog post by Steve Place called “A New Way To Look At Market Volatility.”
Steve opens his article with these words: “I’m always searching for different ways to approach and perceive the market– I feel that sticking to a set of knowledge without flexibility or adaptation will lead to underperformance in the market.”
Now, I ended up liking the article a lot, and agreeing with Steve. But my initial reaction was, “That’s crazy. You can’t just go changing your approach every time you hear something new.”
Steve’s point in the article is that it can be useful to study various market indicators and understand what, if any, predictive value they may have. And he’s especially emphasizing the use of new observations to help you develop or test a theory. In this case, he compares the VIX and the RVX.
The reason I initially had a “whoa, there” reaction is because I’ve long been a follower of the successful growth stock investors such as Ken Heebner, Jesse Livermore, Nicolas Darvas and William O’Neil. All these gentlemen differ somewhat in their approaches, but at heart, they all espouse high-growth momentum investing. And as a long-time growth investor, I’ve really had it drilled in my mind that you stick to your system, and don’t go looking around for some cockamamie new approach just because you’re bored one day!
But then I remembered how Livermore and Darvas wrote about constantly expanding their knowledge bases. They were always learning new market facts, and studying stock behaviors to identify possible buy or sell signals. And to this day, O’Neil emphasizes the need to continue learning throughout one’s lifetime.
It took Darvas several years to master his system. Check out How I Made $2,000,000 in the Stock Market to understand how he continued reading, studying and pushing himself to become a successful investor. Most people would not have had the patience. I’m afraid that’s even more true today than in the 1950s, when Darvas was active.
So thank you, Steve, not only for introducing me to a new way to look at the volatility indexes, but also for reminding me that the market is a lifelong teacher, and as investors, we have to remain lifelong students.
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