Quote for the Week
In a fascinating paper published in 1989, Benjamin Friedman and David Laibson hypothesize that all investors function with two models in mind. The first model approximates the efficient market notion that prices are so close to true value that a movement up is as likely as a movement down and that those movements will be lognormally distributed. The second model is that all hell could break loose at any moment.
Many years ago, an older partner taught me to distinguish between outcomes that are unlikely and outcomes that are catastrophic. The latter are to be avoided even if the odds on them are tiny. Rational investors respond to this type of problem by operating with anchors to windward. They diversify and avoid total commitment to any one bet. But the fear we all share — that what looks like a market today just might not be there for us tomorrow — makes today’s market less than perfect and less than totally liquid. — Peter Bernstein (source)
From the Archives
Last Call
- A Global Weighing Machine – Investing 101
- The Anatomy of a Blow-Up – T. Seides
- One Hundred Years – MFO
- Market Cycles – MFO
- Evidence-Based Forecasting Techniques for the Average Investor – Verdad
- Your Age Is an Imperfect Guide to Investment Risk – Retirement Researcher
- Speculative Supply Chains and the Madness of Crowds – M. Higgins
- Is the Industrial Revolution a Good Precedent for Explosive Economic Growth Today? – M. Clancy
- The End of Google Search—and the Internet—as We Know It – The Ringer
- Organized Rebellion: How Nightlife Evolved Throughout the Ages – LitHub