VIX: Volatility and the Viability of Investing in Stocks

On Tuesday's episode of Mad Money, Jim Cramer made an interesting comment on the viability of stock-investing in this time period towards the end of the show. While commenting on the rampant volatility in the markets and analysis of the CBOE Volatility Index (the VIX or the fear index), Cramer told viewers, "The VIX is a terrific measure of complacency versus heightened awareness." Cramer then noted how fear in the market has been "scaled back" thereby possibly signaling a continuing rally.

What really caught my ear was how Cramer then stated, "I respect this key index, the VIX... because I, like you, find the volatility daunting. And it makes me think that the market isn't an investable option if it continues." In conjunction with Cramer's comments on Mad Money, Cramer recently had an article on TheStreet.com stating that "a colossal market hiccup is coming". Cramer: "We could have several days of major movements up. Everyone who is not in will look like an idiot. Everyone who is short will give back what's left of their year." As traders have had to face various contrarian market movements in comparison to anticipations, Cramer ultimately warned, "Get ready for every last short to be carried out and shot. It's that time again."

While volatility is usually good for traders as individuals are able to take advantage of wide price movements, the idea that putting money in the stock market is not a viable form of investment is quite ominous. Even on Thursday's episode of Mad Money, Cramer compared investors' frustrations with the current state of the market to that of gamblers in a casino. Cramer: "Investing should never be like gambling, but I know for many of you this market has begun to feel like a non-stop game of roulette." Cramer later continued, "Now, we don't like gambling as an investing strategy. Why don't we like it? Because the odds are stacked against you, and the house always wins."

Especially in the wake of the stock market crash in 2008, many have compared the stock market to being like a casino, but is investing or trading really the same as gambling in a casino? If so, then I think pretty much any human activity could be called gambling: where you get an education, labor, dating, marriage, having children, moving to a new location, buying a house, et al. Arguably, such ventures could be considered "gambling", but they are not the same sort of gambling as in a casino.

That being the case, I refuse to see the world as being one big casino. Why? Because in a casino, the house has pre-calculated odds of winning; the house can stack the odds, so one way or another, it is able to take a bit off the top as profit. In a casino, odds are strong that the house is going to win; the nation's most luxurious casinos were not constructed because everybody won. Thus, I think that if the world were to act like a casino, rational players would refuse to play. That would probably be quite a burden for that whole "survival-of-the-fittest" scheme that this universe appears to enjoy so much. But alas, in the real world, rational players plan to play with strategy, play, and continue to play to their advantage -- not to the advantage of some nebulous "house".

Further, unlike going to a casino, humans have no choice but to invest; people are not forced to gamble at a casino. Humans invest in things like housing, food, family, and hobbies with time, energy, and resources; one gambling at a casino is not necessarily purposefully "investing" in luck or the house.

On a personal note, for those who cannot see the difference between investing in the stock market and gambling at a casino, I cannot stand gambling in a casino, but I love watching the stock market and speculating & paper trading on stocks, commodities, futures, and forex. I can say that I personally have never lost my own money in a casino or a similar gambling environment. The one time in my life I went to a casino my one friend coerced me and another friend to go with him and he gave us each a few bucks to spend on slot machines while he gambled at the craps table. After losing about five bucks in slot machines where we couldn't win a single penny, my friend and I decided to get some beers with what we had left.

Now, I can understand that for some gambling may be a worthwhile hobby in moderation or may even provide some entertainment on vacation, and that is fine. Nevertheless, Cramer is right: Investing should not be like gambling. I would go so far as to say that the more investing looks like gambling, the less appealing investing will appear to potential investors and the less investors will be willing to invest at all. Thus, in some ways, in light of the free market, it is in investors' interests for the stock market to not appear like a casino, lest liquidity dries up -- making trading and investing look like a gritty, risky, expensive venture with substantial friction. When the stock market becomes a casino, we all lose.

However, with wide swings in the market, numbing economic & political uncertainty, and rampant volatility, at times the stock market can appear to be like a casino. In this way, there are strategies that traders and investors can use to deal with the volatility. As Jim Cramer has often said on Mad Money, investors looking to avoid market volatility & uncertainty can turn to commodities like gold and oil; investors can also turn to stable, non-speculative, non-financial stocks with high dividend yields.

Going back to Jim Cramer's earlier comment, the idea that stocks may not be a viable investment option going forward owing to uncertainty and volatility should concern all of us. As I have written previously, humans cannot help but invest in this life. Given the existence of time, money, and needs, we have no choice but to invest in something in order to survive.

In this spirit, stocks go beyond mere gambling; they reflect ways for individuals to invest in, support, work with, look up to, and admire companies. Stocks go beyond being three or four letter symbols with numbers; they reflect human achievement, human labor, and the drive for prosperity. Stocks reflect companies and the individuals who work for those companies. If stocks eventually become not a viable investment option, how much sooner will individuals begin to not invest in other things like themselves, each other, and/or the future? We may take it for granted by the depersonalized nature of stock symbols and their accompanying numbers, but in a way, investing in a company effectively equates to investing in individuals.

The idea of a lack of investment in stocks extending to a lack of investment in individuals or the future may sound like a stretch, but the crux of our economic system is that individuals invest in things in order to create wealth, persevere, and prosper. Without some investment, whether it be through a bank loan, labor, etc., there is no creation of wealth. The stock market is at the heart of this system of investment; the stock market is a functional symbol of our system of investment. The bottom line is that if individuals and firms stop investing in stocks, then we will all be at a loss. We need stocks to remain an investable option.

• Check out commodity ETFs and relatively stable stocks with high dividend yields like Verizon Wireless VZ, Energy Transfer Partners ETP, and Sanofi SNY.

• Check out ETFs or actual coins of gold and silver, or holding on to cash in the short-term may also be an option.