Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

RIP, Stock Market Volatility (2007-2012): Berkshire Hathaway Inc. (BRK.A)

Stocks were down on Friday, with the S&P 500 losing 0.1%, while the narrower, price-weighted Dow Jones Industrial Average gained less than 0.1%. However, the S&P 500 gained 0.1%, for its seventh consecutive weekly gain. The last seven-week streak occurred a little over two years ago, between December 2010 and January 2011.

Reflecting the positive result for the week, the VIX Index , Wall Street’s fear gauge, fell 1.6%, to close at 12.46 — its lowest closing value since Jan. 31. (The VIX is calculated from S&P 500 option prices, and reflects investor expectations for stock market volatility over the coming 30 days.)

Berkshire Hathaway Inc.Life at zero-bound volatility
An evening more interesting stock market story than the seven-week streak is the languid death of volatility over the past five days. The decline in implied stock market volatility, as reflected in the VIX Index, has been well documented in my column — the index is now plumbing levels which, prior to this year, it had not seen since April 2007.

Now, consider realized volatility — the actual changes observed in the stock market. Over the past five days, the S&P 500 did not experience a move, up or down, with magnitude greater than 0.2%. In fact, trailing five-day volatility was just 1.7%. That’s the lowest it has been since Oct. 1996, and well within the lowest half-percent of daily values going back to the start of 1950.

Granted, this was a week that was light in terms of the economic data and policy calendar. Light, perhaps, but not empty: A three-day gathering of G20 finance ministers and central bank governors began in Moscow yesterday – the lead-up to which has proven unusually volatile in foreign exchange markets. Investors also received word on Thursday that Europe’s economies shrank faster in the fourth quarter than at any time since the bankruptcy of Lehman Brothers.

There was also a catalyst for upward momentum, as animal spirits appear to be picking up in corporate boardrooms. On Thursday, Berkshire Hathaway Inc. (NYSE:BRK.A) announced it is partnering with investment firm 3G Capital to acquire food group H.J. Heinz Company (NYSE:HNZ), the latest in a spate of potential multi-billion dollar deals. These animal spirits didn’t spill over into the stock market; none of these events were able to inject some electricity into the index, which flatlined.

Was this simply an anomalous week, or does it mark a turning point at which investors must decide whether or not they have the conviction to drive the rally on? I don’t know, but I find zero-bound volatility unsettling, and I can’t help but wonder if it is a symptom of the Fed’s extraordinary monetary experiment. Either way, it’s an excellent reminder that one should remain laser-focused on valuations. When one is in uncharted waters, a margin of safety is no luxury — it’s vital.

The article RIP, Stock Market Volatility (2007-2012) originally appeared on and is written by Alex Dumortier, CFA.

Fool contributor Alex Dumortier, CFA has no position in any stocks mentioned; you can follow him @longrunreturns. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!