Well, the year has had a lively kick off. An ugly one for investors. In fact, the worst in history, from what I hear and see. These bouts of market chaos remind me of the media commentators talking about how policies have benefitted wealthier investing classes disproportionately. Where is that chat now? When markets go up, it’s the rich that gain. When they go down, I guess it’s those pension funds that lose out.
But, where are we going? Why? Is there a light in the tunnel? Yes. Continue reading
What keeps you awake at night?
Black swans, my finance-teaching friend is fond of saying, don’t exist. I entirely agree. Hollywood’s latest offering, “The Big Short” does a healthy job of disproving the theory of Nassim Taleb, which surged to notoriety as a result of being published in the midst of the worst financial crisis for generations.
Taleb is a smart chap, and a great contributor to financial theory. I am a great fan of his stance that there is no such thing as skill in the world of finance, just luck. Each year, out of many managers, a small group will get it right, among them a smaller group will get it right year-after-year. This doesn’t infer skill or talent. It infers a run of good luck, that may or may not hold out. The world is simply way too complicated for anyone to effectively analyse all the relevant parameters to predict the future consistently.
At any time, Taleb argues, there is any number of unforecastable events that might derail an otherwise sound investment thesis. In essence this is true. But in reality, the market brings together a broad plethora of opinions: one man’s black swan is another man’s profit driver. As the Big Short proved. So, this post is not about black swans. It is a more humble summary of what keeps me awake as we start 2016. Financial markets have just reported their worst start to the year on record, so there is obviously plenty to worry about, and as always, much of it is interlinked. Let’s dive in! Continue reading