The Stock Market Is Getting What It Abhors

As a Goldman Sachs quant researcher, Emanuel Derman published a seminal research paper back in 1999 in which he said that there were volatility regimes. Sometimes volatility was low, sometimes it was high, and one would transition from one regime to the next. Financial markets experienced such a regime shift the last couple of months, and not just in volatility but everything. That means what worked yesterday will not work today.

But the problem is that it often takes far too long for investors to smarten up and figure that out. They’ll cling to their short volatility, trend-following, buy-the-dip strategies long after it has become apparent that those trades are no longer profitable. What investors need to realize is that they are facing a number of open-ended risks, with trade tensions between the U.S. and China at the top of the list.