Lower Priced Is Not the Same As Low Priced
If you fall off of a ten foot ledge, but catch yourself half way down, the good news is that you have only five feet left to fall. However, if you own a stock that falls by 50%, there is no good news – it still has 100% left to fall before it hits $0.00.
One Solution to Two Non-Needs
Today I would like to submit for your consideration an idea that belongs in the (now defunct) SkyMall catalog – the receptacle famous for taking different bad ideas of things that you don’t need and combining them into unnecessary gizmos. Need a new bidet sprayer? No? Need a digital accessory caddy? No? Why not combine the two!
Biffy Butler Bidet Sprayer / Digital Accessory Caddy
This is how the thinking goes at Skymall. It is also how the thinking goes at ProShares – take a questionable product, another questionable product, and combine them together! What could go wrong?
Decay
The first element is the volatility exchange traded security. Famous examples include iPath S&P 500 VIX ST Futures ETN (NYSEARCA:VXX).
From a post on my blog in 2012,
Volatility, in and of itself, is neutral to expected value but investors appear to be utterly price-insensitive in attempting to avoid it. With the emergence of faddish financial innovation in the form of various exchange traded notes, it is convenient for investors, including low information retail investors, to express this preference in the capital markets.
Over the past year, this trade has represented an almost perfect transfer from volatility avoiders to expected value seekers. Perhaps the most infamous example is the iPath S&P 500 VIX Short Term Futures ETN (VXX). This security has an expected value of $0.00 over time (and can be directly shorted via either the equity or indirectly via equity derivatives) but serves the purpose of near-term volatility avoiders in the interim. It allows both sets of investors to achieve their stated aim. Over the past year, it is down by over 84%; it will probably achieve similar results in the future.
