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Why So Many Investors Want These Big Losers to Recover

http://www.fool.com/investing/general/2013/08/17/why-so-many-investors-want-these-big-losers-to-rec.aspx

Dan Caplinger
August 17, 2013

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

After having set new records throughout much of the past few months, the S&P 500 (INDEX: ^GSPC) took a break from its bull-market rally over the past week, falling just over 2%. Even though the stock market has repeatedly managed to bounce back from minor dips to push ever higher, many investors are making big bets on increased levels of volatility in the market -- and the huge losses they've suffered so far still hasn't made them lose their resolve.

Why volatility trackers have been losers this year
The losses that investments linked to volatility have suffered have been truly massive. The volatility-tracking iPath S&P 500 VIX Short-Term Futures ETN (NYSEMKT: VXX) has lost more than 50% of its value so far this year, while the leveraged VelocityShares Daily 2x VIX ST ETN (NYSEMKT: TVIX) has plunged more than 80%. Yet even as these investments have seen their share prices fall, investor interest has remained strong, with the iPath ETN having pulled in more than $850 million during just the first five months of the year.

The reason is simple: choppiness in the stock market simply hasn't led to sustained periods of heightened investor anxiety. Even during the months of May and June, when a big jump in interest rates led some to believe that the Fed's imminent exit from its quantitative easing policies could lead to a sustained market correction, modest losses in major-market stock benchmarks were quickly fo