Third Quarter 2022 Economic and Market Review

Success in investing doesn’t correlate with IQ once you’re above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people in trouble investing.

Warren Buffett

The VIX, the market’s measure of volatility and thus uncertainty, has for most of 2022 been above the range of 13-19 that is considered average. And with all the geopolitical and economic uncertainties facing markets, the VIX ended the quarter above 30. Levels above 20 are not only considered high, but they have been found to be predictive of high volatility over the next month. Because investors, and thus markets, dislike uncertainty, volatility has been negatively correlated with equity returns – when the risks of negative outcomes increase, investors demand larger risk premiums, driving P/E ratios down. I will review the risks that investors are having to address, which explain the continued high level of uncertainty.