Low risk, high reward: How the 'volatility anomaly' can help you beat markets

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Beat the market, and sleep well at night too

The “fear gauge,” maintained by CBOE Global Markets, has since come down to the low 20s, but those factors continue to contribute to market volatility, along with worries about another potential COVID-19 surge this spring, as seen in Europe and China.Article contentDuring market corrections, expert advisors like Willis remind people to keep the low-volatility anomaly in mind. Less volatile stocks don’t fall as violently as stocks with higher volatility.

But market participants are human, and humans don’t always act rationally — especially when it comes to decisions about money. Investors are therefore prone to making mistakes.Article content“Investors look at other stocks in the past that were high earners, and so they look for another stock that they think could be a high earner,” Willis said. “This can lead them to decline, not grow.”This anomaly is especially important for investors to consider right now.

Good examples of mature mega-cap tech stocks include Microsoft, Intel and Cisco Systems. They all have relatively low volatility and offer healthy dividends to boot.Willis doesn’t want investors to become scared of investing altogether. For conservative investors looking for steady long-term gains, the low volatility anomaly provides a good basis for a winning strategy.

 

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