Brandy Auterson:
It’s now time for 4 Your Money. We’re joined by David Nelson, CEO of NelsonCorp Wealth Management. Welcome back, David.
David Nelson:
Thank you, Brandy. Appreciate it.
Brandy Auterson:
Well, the stock market has been pretty calm for most of this year, up until a bit of a wake-up call last week. What are you watching in terms of the market volatility?
David Nelson:
Well, you’re right. It’s been very calm, up until the day after Thanksgiving. Things really got exciting as far as that point. Everything pretty much stocks, real estate commodities, it was a horrible day. Oil in particular was down 13% that one day. So the reasons for it, part of the reasons for it is that’s normally historically a very light day as far as trading, a lot of people are off on vacation. And so the volatility typically spikes. Normally things go up, this one wasn’t going up. The volatility continues. Just to give you a gauge here, the VIX index, which is a gauge of risk and fear out there, started the month at 15, ended the month at 30. So this is a big, big item.
David Nelson:
I brought along a chart that I think visually will show people as far as some of the things that we’re looking at these days. On the very far right, it’s showing that the blue line is making its way upward. That means that correlations, I’ll define as far as what we’re looking at here, as far as correlations is basically a measure of how closely assets move together. And so when they move together, when volatility picks up in a significant way, you oftentimes have volatility that goes up. And it’s a very trying time as far as for many individuals out there. So we see the big spike as far as the middle right. that was almost 90. That translates into that there was a lot of selling that was taking place, random selling, fear selling that took place during that particular window.
Brandy Auterson:
All right. So how can viewers incorporate this information into their investment process?
David Nelson:
Well, we have a saying around here that in a crisis, all correlations go to one. As we saw, that was 0.9 earlier. So getting to one was pretty close. And diversification really can’t do anything for you as far as when correlations are that tight. All stocks pretty much across the board are being sold off and just in a discriminant selling that’s taking place. So you can hedge as far as against that, and you can take some risk off the table by selling some of your assets if you believe that that’s going to continue, and at the end of the day, that you’re going to have a lot more exposure as far as to stocks than you feel comfortable with.
Brandy Auterson:
All right, David. As always, thanks for joining us.
David Nelson:
Thank you.
Brandy Auterson:
If you missed any of our discussion, we’ll make it available for you on ourquadcities.com.