Turn Short-Term Fear Into Long-Term Profit

That turned out to be the high point for this cycle. In March 2004, the VIX averaged a reading of 17.7. By March 2005, the average was just 13.1.

The first four months of 2006 saw VIX readings as low as 10.74. For the year through May 10, the beginning of the current selloff, the VIX averaged just 12. Investors had become accustomed to low volatility, and fear had dropped to levels even lower than during the run-up to the 2000 bubble.

I don't think we're headed toward anything like a replay of the bust of 2000. Stock market valuations aren't nearly as stretched, future economic growth looks far better and market liquidity is relatively supportive.

Instead, we're headed back to normal times, when stock markets and stock prices fluctuate with something like their average volatility. Given the recent abnormally low level of volatility, a return to normal is going to hit some investors hard. Abnormally low levels of volatility have led some professional investors to load up on debt in order to pursue risky investments.

But as I look through my list of the five trends that form the backbone of my long-term investing strategy, I'll be darned if I can find a single instance where the return of stock market volatility to normal levels changes anything. I still want to own stocks that give me a piece of these trends over the next five years.

What are these five trends?

The developing world is growing richer. Oh, not all of it. But countries such as China, India and Vietnam -- more than 2 billion people just in those three, and many more in other developing nations -- are growing their economies at rates double or triple the 3% growth rate for the developed world projected by the Organisation for Economic Co-operation and Development.

That will add hundreds of millions of consumers to the global middle class who will demand middle-class products and services, such as life insurance, home mortgages, hotel rooms and cars.