FOMO and a good night’s sleep

Nov 2, 2021

Imagine you are at a wonderful party, having a great time and contemplating when you should leave. Too early and you’ve missed a great deal of fun. Too late and you run the risk of over imbibing, no UBERs or worse.

So far in 2021, equity investments have been akin to that amazing party. There are signs that it is getting later in the evening, and no one really knows for sure when the right moment is to bid adieu and head back home. The two charts below provide some insight as to how late it is.

Investor Credit and the Market
Investor Credit and the Market

So, how does one determine when it is time to leave the party – probably when everyone else is about to do the same thing, but before they all have left. For equity markets, VIX instruments are a good proxy for people getting ready to head for the exits. One could think of these instruments as the UBERs for investors. UBER rides are priced relative to proximate demand – as more people are looking for rides, the price rises. The same could be said for VIX instruments. Institutional hedgers are like the UBER riders, the more they seek insurance (read VIX options and futures) the higher the price of the VIX.

By understanding how that demand operates, it may be possible to divine how investors may react and have insight into when it’s time to arrange for a ride home before the rush for the exits becomes overwhelming. Tactical strategies are one option to enjoy the party without worrying about overstaying one’s welcome.

Matt Thompson

Jeff Landle

CFA

Chief Investment Officer at LHA

Disclosure

Investing involves risk. Principal loss is possible.

This information is provided for informational purposes only and does not involve the rendering of investment advice. This is not an offer to sell or a solicitation of an offer to buy an interest in any investment fund, instrument or financial product, or for the provision of any investment management or advisory services. Recipients should not rely on this material in making any future investment decision. This Commentary should not be regarded as a complete analysis of the subjects discussed. Little Harbor Advisors, LLC (LHA) makes no representation that any strategy would be appropriate for any particular investor. All expressions of opinion reflect the current view of LHA as of the date of the original use of this information and are subject to change. While LHA uses reasonable efforts to obtain information from reliable sources, it makes no representation or warranty as to the accuracy, reliability, or completeness of any information prepared by another party. There can be no assurance that either strategy will continue to hold the same positions or percentage of instruments described herein and each strategy may change any position at any time.

VIX is the ticker symbol for the Chicago Board Options Exchange (Cboe) Volatility Index, which shows the market’s expectation of 30-day volatility. FOMO represents the phrase fear of missing out.