FYI: Seeing the market crash [1]from a few weeks ago, it is clear how quickly the market can ferociously hurdle in front of one’s risk models. Risk models that failed to safeguard against risk when it mattered the most [2]. Models that left many large hedge funds hemorrhaging - top funds which by definition were supposed to protect their investors in the August tumult. Instead when markets broke bad, a lot of things “went wrong”; and stayed that way. In this article, we explore a number of the large U.S. market crashes since the mid-20th century, and show how the recent bust compares. We learn why relying on risk models whose approximations presume to work consecutively at all times, can lead to failure. The key for investors (if they must be active) is to always remain vigilant. Professor Nassim Taleb recently expressed it nicely:The *only* way to survive is to panic & overreact early, particularly [as] those who “don’t panic” end up panicking & overreacting late.
Regards,
Ted
http://www.ritholtz.com/blog/2015/09/thinking-about-market-risk/print/
