Market Turmoil: What Should Investors Do Now?

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The Dow dropped 500 points at one point on Thursday, bringing concerned investors to ask the age old question: "What do I do now?"

Barry Ritholtz of The Big Picture says that's the wrong question. What investors should be asking is, "What have I already done to prepare for today?" And more to the point: "What can do I do to prevent it from happening again?"

The problem with investors today, he argues, is the tendency to jump to action whenever a news story breaks. Following every tremor in the market will drive anyone crazy. Instead, he suggests that with a bit of planning you could be all set to weather some of the most unsettling economic storms.

What you can do is anticipate events that are cyclical in nature. These major shudders repeat every few years, so we should not be surprised by them. Construct a plan that allows you to ride out these events without panic or forced errors. You need a plan that anticipates these regular occurrences.

As Ritholtz points out, when it comes to investing it's best to be proactive instead of reactive. So how can you protect yourself from unexpected, insane market volatility?

To help you find ideas, we crunched the numbers, and identified a list of stocks that have a positive correlation with the VIX index (aka the market's "fear gauge").

In other words, these stocks tend to see gains when market volatility, i.e. uncertainty, increases. They can provide a good hedge if you're worried about extreme market swings.

To further refine the quality of the screen, we only focused on companies that have seen significant insider buying over the last six months.

Insiders seem to think these stocks will continue to be protected from market volatility -- what do you think? Of course, past performance is no guarantee of future results, so only use this list as a starting point for your own research.

List sorted alphabetically. (Click here to access free, interactive tools to analyze these ideas.)

1. Akorn (NAS: AKRX) : Engages in the manufacture and marketing of diagnostic and therapeutic pharmaceutical products, hospital drugs, and injectable pharmaceuticals in the United States and internationally. Correlation to the VIX index over the last 60 days stands at 0.591. Over the last six months, insiders were net buyers of 33,500 shares, which represents about 0.05% of the company's 67.56M share float.

2. APAC Customer Services (NAS: APAC) : Provides customer care outsourcing solutions and business process outsourcing services worldwide. Correlation to the VIX index over the last 60 days stands at 0.515. Over the last six months, insiders were net buyers of 45,000 shares, which represents about 0.16% of the company's 28.99M share float.

3. Rex Energy (NAS: REXX) : Operates as an independent oil and gas company in the Appalachian, Illinois, and Denver-Julesburg basins. Correlation to the VIX index over the last 60 days stands at 0.512. Over the last six months, insiders were net buyers of 77,325 shares, which represents about 0.22% of the company's 35.04M share float.

4. STAAR Surgical (NAS: STAA) : Designs, develops, manufactures, and sells implantable lenses for the cataracts and refractive surgery. Correlation to the VIX index over the last 60 days stands at 0.671. Over the last six months, insiders were net buyers of 11,927 shares, which represents about 0.05% of the company's 25.00M share float.

Interactive chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


 

At the time this article was published Kapitall's Eben Esterhuizen and Becca Lipman do not own any of the shares mentioned above.Price and insider data from Yahoo! Finance.Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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