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VIX, VXN and the Three Cs~ This Ominous Silence of the Lambs
For a while, new to the world of markets and finance, I thought he meant Three Seas. I was not sure beyond the Atlantic and Pacific, which third sea of the seven he favoured for investment purposes.
After a while I caught on. Bob was talking about the Three Cs of Complacency, Concern and Capitulation that were the emotional sentiment that powered markets.
The three Cs were related to the Contrary Opinion Investment Philosophy published by Jim Fraser in Vermont.
Contrary Opinion Investment consists of considering doing the opposite of the Crowd at market turning points, buying at bottoms when most sell, and selling at tops when most buy. In other words, buy when we’re afraid, and sell when we’re happy.
The Bible paraphrases this sound investment wisdom with:
Enter through the narrow gate; for the gate is wide and the way is broad that leads to destruction, and there are many who enter through it.
Matthew 7:13-14
Mr Fraser sold his Contrary Library business in 2002, not quite contrary timing.
It is now owned by Mark Shephardson in Flint Hill, Virginia, at the base of the Blue Ridge Mountains.
http://www.fraserpublishing.com/about.html
What Master Market Analyst Robert Farrell developed was an acute awareness that people were most confident or complacent at market tops. They only began to develop concern after it was quite clear the market had ceased going up. Finally, they threw in the towel at the bottom, known as capitulation.
While some may see this as a dismal view of the nature of man or the emotional investor, the Contrary Investment Philosophy may be quite liberating for others.
If we are not careful with too much success going against the crowd, the risk may be arrogance or even condescension. Let us always retain our sense of humility and wonder.
Mr Farrell also had a theory about buying rounded market bottoms and selling sharp market peaks, but perhaps we had better leave that for another time when more appropriate.
For now, we wonder if the divergence between VIX, VXN and Mr Market is trying to tell us something.
If not, then maybe the 51 target for VXN, up from 18 and down from 29 as of late as the market went lower, is warrant for caution.
Regards*Rich
