The Vix Rises....Then Falls Again

So, equity volatilty surges on the day I write about its being dampened. Go figure.

Former Fed Chairman Greenspan's misunderstood comment about recession potential spooked investors in the Asian markets, triggering the 9% sell-off in China. The ripple effect drove the S&P500 down 3.5% yesterday. The Vix rose roughly 50% yesterday, to around 17, from 11.

Today, during and after current Fed Chairman Bernanke's Q&A with the House Budget Committee, the index is recovering, up .66% as of 12:30PM EST. And the Vix had fallen 2.7 points for the day so far.

To me, investing for the 'long term' does not mean leaving one's money in any one thing for very long, as I wrote in yesterday's post. It means following a disciplined, reasoned strategy over a long period of time.

In fact, my partner expressed delight in the fact that, despite yesterday's market trauma, we didn't have to to anything. Nothing that occurred yesterday affected the strategy or its management. In a different context, it might have done so, but yesterday's events came nowhere near triggering any changes.

In the light of this afternoon, with Bernanke's testimony, and re-interpretations of Greenspan's remarks, the market has recovered, and yesterday's panic now looks excessive. Thus, the comfort of knowing we could sit tight, and confidently so, was very calming.

In the wake of a day like yesterday, it's important to note that relative longer-term values are difficult to assess amidst such rapidly falling prices. Probably the best, simplest decision is simply to either stay in one's long equity positions, go to cash, or go short. But not to try to trade amongst various equities.

Late last night, there were reports of unprocessed trades at the close of the market, and clearing running more than half an hour behind the market's close. In conditions like that, trading between equities is almost as risky, if not riskier, than simply doing nothing.