Quote for the Week
As Justice Holmes pointed out, though, “Certitude is not the test of certainty.” What I believe will happen in financial markets and what ends up happening have no necessary relationship. The future is uncertain, and the returns investors earn will depend on the nexus of actions taken and how events unfold. Financial history provides just that: history. Its ability to inform how we think about the future and to affect how we position assets would be dispositive if it were not for the most important feature of capital markets: nonstationarity.
Nonstationarity refers to the degree to which the future does not resemble the past. If it were not for nonstationarity, we could just look to the past and unfailingly predict the future. The richest people would be those with the best databases. Librarians would be firing young aspirants to wealth on reality TV shows. Nonstationarity means that investment judgments are probabilistic and that even the best investment process will lead to undesirable results from time to time. Investment theorist Peter Bernstein noted that even if the expected value of the future were known with certainty, the standard deviation around that value would guarantee results that diverged from the averages, sometimes dramatically, and not always positively. — Bill Miller (source)
From the Archives
Last Call
- Why are You Looking at Everyone Else? – Investment Talk
- Factors Come and Go… – Klement on Investing
- Don’t Swim Naked: Low Risk Strategies in a Risk-Loving Market – Owenomics
- Before Berkshire: Warren Buffett’s Tab Card Triumph – Kingswell
- Intel’s Death and Potential Revival – Stratechery
- Why You Need a News Vacation – Range Widely
- A Miracle: Notre Dame’s Astonishing Rebirth From the Ashes – NY Times
- Ranking the 25 Coolest Things in Space So Far in the 21st Century – ArsTechnica
- Meet the Extreme Travelers Trying to Visit Every Country in the World – Outside