Via AdventuresInCapitalism.com,
I have always run my book with two distinct buckets.
One bucket is focused on “global micro trends,” which means that I find thematic inflections in global markets and position myself in small and mid-cap names that are likely to benefit. This is the fun stuff that I like to write about.
My other bucket, which I rarely write about, is focused on event-driven, tactical opportunities in idiosyncratic market dislocations and mispricing. Rarely do these two buckets overlap, but of course, 2020 is anything but the norm.
Starting in late 2019, I noticed a change in market structure—suddenly and relentlessly, Implied Volatility (IV) for smaller companies began to increase. At the time, I attributed it to the accelerating economic recession that started in the third quarter of 2019. However, even as the VIX made new lows during the winter, the IV of many smaller companies I follow continued to increase. It was a curious divergence at a time full of curious divergences. Then, COVID-19 hit, the markets went bonkers and I sort of forgot about it, until things quieted down in the broader VIX during June, while the IV in my names only partly declined from peak levels back in March.
Now, you can attribute this to many causes. For starters, realized volatility is simply off the charts for the past few months. Dealer desks have been replaced by stay-at-home traders in bathrobes who don’t exactly have the permission of risk managers to take directional bets and compress IV. Besides, no one knows what will happen on dozens of complex issues from the economic, to the social to the geopolitical, to the election itself in November. The range of possibilities is massive and the world is clearly unsettled—volatility ought to be elevated, but should prosaic names with clean balance sheets trade at triple digit IVs?
With that in mind, it’s time to point out the newest variable - Robinhood.
http://www.zerohedge.com/markets/stocks-only-go?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.
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