…Of the ‘Black Swan’ is very difficult to ignore. As the weakest week of the weakest month comes to a close, and ends with an impressive gain, here’s a quote from Peter Lynch: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”
Here’s a few more thoughts from Charlie Bilello:
There are few things more alluring in the investment world than the thought of predicting and profiting from the next black swan. Shorting, buying out of the money puts, going long volatility – betting on the next crash – is unbelievably tempting. If you’re right, the payoff can be immense and you’ll be one of the few to reap the rewards; more satisfying for many: everyone else will be losing money and wrong.
There is no greater feeling in markets than being right when everyone else is wrong.
But calling the next crash – even when you’re right – is a tricky business to say the least. Timing is everything when it comes it predicting financial Armageddon, as we saw in the movie “The Big Short.” And as black swans are by definition extremely rare, getting the timing right can be unbelievably difficult.
But that doesn’t stop many from trying, for the siren song is too great.
More: For long-term investors, betting on positive equity returns over time is a bet rooted in probabilities. There will be recessions and there will be corrections, but your expectancy is a positive return if your holding period is long enough. Simply put, the odds are skewed in your favor, just as the odds of timing the next black swan are skewed heavily against you.
Read the whole thing, highly recommended: www.pensionpartners.com