People think of Warren Buffett as the world's best value
investor - which is obviously true.
But they completely forget that he's also a world-class
trader. If you want proof, just look at a handful of the moves
Berkshire Hathaway (NYSE: BRK-B)
made during the financial crisis back in 2008-2009.
The biggest example is his investment in
in 2008. If you read the details, it sounds like a completely
different person than the slow-moving, deliberate "my favorite
holding period is forever" value investor we're familiar
First off, he sold significant amounts of his holdings in
Johnson & Johnson (
), Procter & Gamble (
) and ConocoPhillips (
) to generate the capital to buy $14.5 billion in Goldman stock
Berkshire invested in Goldman Sachs when every investor was
fleeing Wall Street banks. As a result, he got a great deal since
the stock had fallen over 50%.
This type of trade lines up exactly with one of Buffett's most
oft-quoted sayings: "
Be fearful when others are greedy and greedy when others are
Buffett made billions from his Goldman trade - and his entry
point just happened to coincide with an all-time high in what is
known as the Volatility Index - which also just so happens to
measure investor fear…
Last week I gave a presentation about the VIX, titled "
Using the VIX to Collect More Income from SPY,
IWM and AAPL.
Any investor can use the VIX - even if you're not an options
trader. Before I tell you how, here's a little background into
how the VIX came to be:
Developed by the Chicago Board of Exchange in 1993, the CBOE
Volatility Index or VIX is one of the most widely accepted
methods to gauge stock market volatility. The investor fear index
moves higher when fear increases and lower when investors are
complacent. That's because when volatility is high investors are
typically panicking. It leads to selling based on fear and
quickly falling stock prices.
As you can see in the chart below, there is no doubt that the
uncertainty surrounding the government nonsense two weeks ago
increased investor fear. And again, there is no better way to see
this than in the VIX.
The blue circle on the chart shows the spike on the VIX during
the government shutdown.
Volatility Spikes During Government Shutdown
So how can you profit from the VIX?
The short answer is that by using the VIX, you can gain an
edge of fearful investors. Or you can see when investors are
It's important to note what's happening in the VIX right now,
because it's AGAIN near all time lows.
The last time we saw the VIX bumping along the bottom of its
range like this was in 2007… and the time before that was in
1999, and then before that was in 1994.
I don't have to tell you what happened in the months and years
following those periods of historically low fear.
If you're an options trader, you can use this type of low
volatility to make money if/when the VIX rises.
But if you're not, you should still keep an eye on the VIX. We
don't know if Warren Buffett uses it as an indicator for his
trades, but big moves in the VIX certainly seem to line up with
some of his most successful investments…
At the very least, take a look at the VIX when you're
about to make big buying or selling decisions. Be greedy when
others are fearful, and visa versa. Let the VIX be your
And if you're interested in using the VIX to make extra income
with options, you should take a look at the
presentation I made last Wednesday
. Within the presentation I discuss in great detail, three
specific examples of how I use the VIX to take advantage of fear
in the market. It's one of the most important aspects of selling
options so if you wish to learn how to take advantage of fear in
the market you don't want to miss my presentation.
Is the VIX an indicator that you're currently using? Do
you have questions about the VIX? I would love to hear from
you. Please send me an email at