Incomplete data

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“Events that models only predicted would happen once in 10,000 years happened every day for three days.”

“Wednesday is the type of day people will remember in quant-land for a very long time. Events that models only predicted would happen once in 10,000 years happened every day for three days.”

“Our strategy is fine. We were just hit by a sixteen-standard-deviation event.”

“Then it didn’t happen: the universe isn’t old enough for even one sixteen-standard-deviation event to have ever happened.”

These various quotes highlight the problem with putting too much faith in the past. The market has followed one of an infinite number of paths to get where it is today. Despite our best efforts, we cannot model or account for the unknown future with certainty; that would seem to be the only certainty. History does seem to suggest that risk is the partner of reward, and I, along with others would do well to remember this.

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