In general, the investment/trading community equate volatility to risk, at least to first order. Two questions for you: 1. Do you agree? 2. Over most 3 decades windows, QQQ > SPY. Does it mean the more volatile QQQ is not really higher risk?
two basic definitions of risk: 1. Markowitz : volatility = risk 2. Graham and Dodd : permanent impairment of capital (a loss isn’t coming back)
I think QQQ had a 83% drawdown in the last 3 decades. While SPY was around 50%. QQQ is higher reward and also higher risk
Depends on what’s appropriate for you. a 401k should think in graham terms. a pension fund should think in markowitz terms.
To me high volatility just means a stock's price has the potential to move against you faster and harder. Doesn't mean it will but it has the potential to. I'm more interested in how volatility affects predictability. Does a stock's price become more predictable during a period of high volatility? Or less?
You can profit from opportunity. I see QQQ and SPY as risk free investments...better than any bonds. The only risk is timing. I would never sell a position in either because of a drawdown...I would use an as opportunity to load up. I can't believe I missed this! Coincidence it bounced right on the .618 level right? Right lol. For all you naysayers accusing of hindsight blah blah...my chart would have looked like this: