The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails

The Black Swan’s Calling Card

To avoid getting crushed, you have to make friends with volatility. Volatility is the mascot of the modern financial market. Volatility is so important that several of the world’s largest Wall Street banks, including Goldman Sachs, have published landmark research reports telling their best clients that they should consider volatility an asset class—just like stocks and bonds.

Indeed, volatility is closely tracked by the world’s most sophisticated investors. Volatility is everywhere. For a moment, forget the world is filled with people and cultures and cities and towns. Imagine the world is just a giant stock market, and nothing more. Now, picture a globe of the earth hanging in the air in front of your eyes. Now, imagine that globe is crisscrossed with lines that look just like longitude and latitude grids. The lines are volatility. They are the invisible and inevitable byproduct and measurement of the financial market’s movement. The volatility lines are primarily influenced by the movement of stocks, bonds, and credit default swaps, volatility is so sensitive as to capture movements in many different markets and areas of the economy. Sometimes volatility is benign. This happens when the market has enough liquidity to absorb movements in and out of stocks, or between asset classes. Sometimes, volatility is fierce and destructive. This may happen when everyone decides to sell all at once, or maybe everyone wants to buy—although, no one is much bothered ...