Is Volatility in Oil Price on the Way, Again ?
Experts say that you shouldn’t look at your pension investments too often as you might make unwise decisions. I don’t follow this advice. The reason that I’m drawn to tending my pension spreadsheet weekly, if not daily, is two-fold. First, I’m told by professionals who read the tea leaves on this sort of thing that I have Asperger’s syndrome. It turns out that pawing over columns of numbers in Excel is nirvana to certain of us oddball hues on the autism spectrum. Second, for ten years I have had a fascination, bordering on dread, for the incremental drama of two charts in my spreadsheet, both of which are shown below.
Paradoxically, neither chart directly relates to my investments. However, they have guided the timing of when I move money around in my accounts – shifting between riskier stock indexes to safer bond funds. So far, my strategy has worked. For example, my pension fund suffered little during the 2008 financial crisis, and from lesser bouts of turbulence in 2011 and 2015.
So how does my investment approach work? It’s quite simple. The top graph in red shows a rolling 3-day standard deviation (SD) of daily oil price – specifically calculated from the Brent crude oil index. The chart below it in blue is a rolling 3-day SD calculated from the Dow Jones Industrial Average. Whenever, the red chart (i.e., that of oil) develops a cluster of large spikes that is sustained for a few months or more, I’ve noticed that a similar cluster turns up a few months later in the stock market. More importantly, I’ve learned that you don’t want your money in stocks when this is happening, so when the warning signs occur in oil, I march my money off to the relative safety of the bond market.
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