Juggling with Knives: Smart Investing in the Coming Age of Volatility

Jim Jubak’s Juggling with Knives (I couldn’t resist the alliteration): Smart Investing in the Coming Age of Volatility (PublicAffairs, 2016) is a thoroughly enjoyable if somewhat unnerving book. It takes us on a roller coaster ride of volatility in the markets as well as in everyday life. And it offers some investing recommendations, which Jubak optimistically prefers to call solutions.

Volatility runs in cycles. After a period of very low volatility (from roughly 1981 to 1997) and a transitional phase (1998-2007), we are now in a period of very high volatility, a period that started in 2008. This new era, he contends, is “something more, something different from these historical cycles.” The new spike in volatility isn’t confined to financial markets. Real-world trends such as aging populations and environmental costs are combining with the flood of cheap money from the world’s central banks to produce real-life volatility.

Jubak does a masterful job of describing global volatility trends, their causes and dangers, paying special attention to China. But he also brings volatility home, dealing with real estate prices, educational costs, and the job market.

Although most of this book is about long-term volatility trends, Jubak notes that they “are accompanied by big surges in instances of short-term volatility. Because long-term volatility produces change that operates in fits and starts as it moves toward a new equilibrium, accelerated long-term volatility results in an increased frequency of bouts of short-term volatility.” (p. 296) Investors and traders should use asset classes that “match the duration of the volatility trends that [they’re] trying to profit from or hedge against”: stocks and bonds for long-term volatility trends, options for short-term volatility events.

What are some long-term volatility strategies? For the most part Jubak suggests dividend-paying stocks over bonds, although he points the reader toward some short-term bond plays. He identifies stocks that have strong long-term trends at their backs. These, he says, are the stocks you want to buy low and sell high, over and over again. “Volatility here is your friend—or at least that’s the goal.” (p. 287) He also describes an investing strategy using a basket of emerging market stocks.

If you understand the sources of volatility, Jubak concludes, you might “feel less out of control and less a victim of cosmic forces beyond your ken and more like a captain who, because of an ability to read the waves, knows how to steer a ship safely through dangerous storms.” (p. 314) Perhaps yes, perhaps no, but Jubak’s book is a worthwhile read in either case.

Juggling with Knives: Smart Investing in the Coming Age of Volatility