Tuesday, November 20, 2007

This Too Shall Pass

The volatility of the stock market over the last 4 months has been greater than anything we've seen since the market bottom in 2002 and it has investors worried. I am not one of them. The VIX volatility index is now trading at levels that we have seen many times before and the recent rise is typical of market corrections. It is a contrast with the low volatility of the last few years, but it certainly isn't unusual when viewed over a longer period of time.

The main reason this correction does not worry me much is that sentiment is now very negative. The AAII Poll now shows nearly 50% bears and that is not a number associated with market tops. In addition, put/call ratios are elevated indicating mounting fear in the market. Long term investors, like us, should be contemplating the purchase of long term assets in the near future.

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