On May 6, 1994 Robert Francis Goldthwait made his mark on television history. Better known as Bobcat Goldthwait he chose for some strange reason to set fire to the interview chair during a guest appearance on the Tonight Show. This incident lasted only 30 seconds or so as Jay Leno used his beverage to douse the flames. I think what Bobcat was trying to do, in his own unique way, was to demonstrate that volatility spikes are often doused very quickly in the financial markets. I commend him for this bold lesson in not panicking when volatility hits the stock market.
The industry standard for measuring market volatility is the CBOE Volatility Index better known as VIX. One of the behaviors of VIX is that it tends to revert to an average or oscillates around an average. The chart below shows VIX along with a 10 day moving average over the course of 2012. Note that VIX oscillates over and under this moving average throughout 2012. Any quick move up in VIX is followed by a drop and within a few days VIX is back under that average.
Instead of overreacting, Jay Leno made Bobcat sit back in the wet smoldering chair. Jay’s actions showed that after the volatility of this fire occurred and had passed, it was safe to jump back into the market. Of course the guest chair represents the market in this lesson. Cooler heads usually prevail during times of panic, whether it is a chair on fire or a financial market under pressure. Next time the market is acting irrationally, like a burning chair on national TV, don’t panic and once the fire is out don’t be afraid to jump back into the market.