When you look at enough data, you know that there is a spectrum of possibilities.
Some folks don’t look at so much data. Even worse, some folks present data in such a way to twist people to buy things. You can just gently data-mine and select great figures and leave out the less than desirable ones.
People not familiar with the subjects, or who are less data-focused dunno what to think.
But the most dangerous ones are the ones who genuinely want to do good to educate but didn’t realize the spectrum of possibilities for something is actually too narrow.
If someone is uncommon, or rare, different people handle it differently. The anxious and cautious ones would be concerned about it. The optimistic ones will dismiss that this would not happen to them.
This is probably why many do not actively do their own Lasting Power of Attorney for example.
Events can be uncommon… but that doesn’t mean multiple uncommon events cannot cluster together:
If you are planning your trading model or system, would you ever factor into your system that oil prices can go extremely negative? Can your IT system handle it?
If you have a range of unemployment in this range, is there any possibility that we will have a higher unemployment rate than 10%? We probably discovered that not too long ago, which is quite close to oil.
We thought that housing prices’ rise from 2000 to 2007 was a bubble.
Now, our prices are higher than that.
If you are planning your advisory narrative that bonds would cushion equity volatility, what happens when you realize that the past few years are not the norm, that the norm is bonds and equity correlations can be positive?
Just because bonds don’t have big drawdowns in your lifetime, does not mean bonds cannot have very big drawdowns.
Some things that may be rare to us… may not be so rare. It is just whether we take things seriously in our planning or not.
Boundaries are there because they will happen, and it is for you to factor into your systems and planning processes.
The question always is how do you plan well knowing the boundaries matter and not so fixed.
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