Money and Finance
- Michael Burry's 2008 1st Quarter Letter
Thanks to Dang for reminding me about these letters being online, which prompted me to go back and read this one, which is full of great insights. Earlier this month, I took my family on our first extended vacation far away from California, and we ran...
- Nassim Taleb Quote
“We humans are the victims of an asymmetry in the perception of random events. We attribute our successes to our skills, and our failures to external events outside our control, namely to randomness. We feel responsible for the good stuff, but not for...
- Hussman Weekly Market Comment: "do I Feel Lucky?"
As of last week, the market continued to reflect a set of conditions that have characterized a wicked subset of historical instances, comprising a Who's Who of Awful Times to Invest . Over the weekend, Randall Forsyth of Barron's ran a nice piece...
- Evolution: A Game Of Chance
One of the toughest concepts to grasp about evolution is its lack of direction. Take the classic image of the evolution of man, from knuckle-walking ape to strong, smart hunter: We view this as the natural progression of life. Truth is, there was no guarantee...
- Hussman Weekly Market Comment: A Reprieve From Misguided Recklessness
An immediate note on market conditions. Last week's market advance cleared out the "predictable" expectation for constructive returns that briefly emerged from the recent market selloff. That doesn't mean that the market can't advance further,...
Money and Finance
Hussman Weekly Market Comment: The Third Law of Randomness
On March 5th, our estimates of prospective return/risk conditions in the stock market fell to the most negative 2.5% of all historical observations (see Warning - A New Who's Who of Awful Times to Invest). On March 26th, those estimates fell to the most negative 0.5% of historical observations (see A False Sense of Security), and have remained in that range since that time. Market conditions have now been in this hostile set of conditions for 16 weeks. This situation might continue on to 20 weeks, or to 24 weeks. It might continue longer - though I doubt it. What we do know, however, is that when conditions have been similarly negative historically, the S&P 500 has plunged at an annualized rate of over 40%, distributed over some of the most awful outcomes in market history.
How do we know that the present instance will turn out similarly? We don't. Proper investing doesn't rule out randomness and unpredictability, particularly when it comes to individual events. It instead diversifies against randomness both across holdings at each point in time, and across time by repeatedly acting on the basis of averages instead of individual forecasts. Random events behave predictably in aggregate even if they're not predictable individually - a fact that Charles Seife calls the Third Law of Randomness. "To say something is random is not equivalent to saying that we can't understand it. Far from it. Randomness follows its own set of rules - rules that make the behavior of a random process understandable and predictable. These rules state that even though a single random event might be completely unpredictable, a collection of independent random events is extremely predictable - and the larger the number of events, the more predictable they become."
- Michael Burry's 2008 1st Quarter Letter
Thanks to Dang for reminding me about these letters being online, which prompted me to go back and read this one, which is full of great insights. Earlier this month, I took my family on our first extended vacation far away from California, and we ran...
- Nassim Taleb Quote
“We humans are the victims of an asymmetry in the perception of random events. We attribute our successes to our skills, and our failures to external events outside our control, namely to randomness. We feel responsible for the good stuff, but not for...
- Hussman Weekly Market Comment: "do I Feel Lucky?"
As of last week, the market continued to reflect a set of conditions that have characterized a wicked subset of historical instances, comprising a Who's Who of Awful Times to Invest . Over the weekend, Randall Forsyth of Barron's ran a nice piece...
- Evolution: A Game Of Chance
One of the toughest concepts to grasp about evolution is its lack of direction. Take the classic image of the evolution of man, from knuckle-walking ape to strong, smart hunter: We view this as the natural progression of life. Truth is, there was no guarantee...
- Hussman Weekly Market Comment: A Reprieve From Misguided Recklessness
An immediate note on market conditions. Last week's market advance cleared out the "predictable" expectation for constructive returns that briefly emerged from the recent market selloff. That doesn't mean that the market can't advance further,...