Quote for the Week
The most famous comment about the long run was Keynes’s quip that in the long run we are all dead. Keynes was really arguing that, in a system that is naturally volatile and characterized by uncertainty, most of us simply do not have the time on earth required for economic and financial variables to regress to their long-run means. We are inevitably trapped in the short run.
The difficulty arises because the long run is not a homogeneous state of the world, a smooth and straight line into the future. The long run is the average of a set of heterogeneous states of the world. We have no reason to expect that what lies ahead in our lifetimes is going to match precisely the average experience that the so-called long run represents…
While we can learn from the long run about how bonds and stocks respond to changing environments and to each other, the long run can tell us perilously little about what kinds of environments lie ahead. On that point, I maintain, we have to accept uncertainty rather than fighting it: we must rely more on judgment than on economic models. I agree with Nobel Laureate Kenneth Arrow that “Our knowledge of the way things work, in society or in nature, comes trailing clouds of vagueness. Vast ills have followed a belief in certainty.” — Peter Bernstein (source)
From the Archives
Last Call
- Take Something Away – Program that Lasts
- Contrarians Everywhere, Contrarians Nowhere – Risk of Ruin
- How to Think About Risk with Howard Marks (video) – Oaktree
- Some Things Never Change – Kingswell
- This Is Why I Don’t Have Goals (And What To Do Instead) – R. Holiday
- Forecastability and Portfolio Optimization – Verdad
- The ETF Market: A Zine – D. Nadig
- Are We Too Impatient to Be Intelligent? – Behavioral Scientist
- 50 Years Later: Remembering How the Future Looked in 1974 – New Stack
- Why Does Yellowstone National Park Turn Us All into Maniacs? – Outside