If you'd asked me about “volatility” when I went through business school 40 years ago (I specialized in finance), I would've replied with nothing but a quizzical stare.

Beta, the first measure of volatility, was only just beginning to be used. In those days, the simple-minded view was that high-beta stocks just tracked the market, though they zoomed up and down several times as much.

For us wannabe gunslingers, it followed that the way to make money was to find the highest-beta stock you could and ride it to glory in the next stock market boom.

Needless to say, that didn't work.

Some stocks were highly correlated with the market and thus had betas close to “1” – but others weren't, and they had high or low betas because their prices zoomed up and down independent of the market or didn't move much at all.

Mining stocks, which have sunk continually in price since 2011 while the market has soared, are a current example.

Today, therefore, we use “volatility” – technically the normalized standard deviation of daily returns – as a measure of the variability of individual stocks and the market as a whole.

For its part, the Chicago Board Options Exchange Volatility Index (VIX) has remained at elevated levels (above 20, compared to its usual level in the low teens) for most of the last three months.

Of course, this matters very little to individual investors buying for long-term investment.

However, it's important to institutions, which are imbued with the theories of modern finance. And that, in turn, can be useful to income investors.

By understanding institutional behavior, individual investors can improve their own returns without following the herd.

Today, institutional investors follow the precepts of modern financial theory, which suggests that you set an acceptable level of risk then vary your holdings between stocks, bonds, commodities, hedge funds, and other asset classes, using leverage if you like.