On Monday, 19 September 2016 at 02:39:33 UTC, Walter Bright wrote:
On 9/18/2016 5:20 PM, Andrei Alexandrescu wrote:
Thanks. Well this kinda boils down to a tautology. I remember
my wife asked me
once "what kind of insurance could protect us against
anything"? There isn't one
(which is kinda terrifying first time you realize it). In the
US, as an aside, I
don't think there is even a medical insurance that could
protect you from
financial ruin in all cases.
There is no easy option, and there is no risk-free option - so
obviously we
aren't looking for such.
My fatalistic view is if the market tanks that badly, it'll
bring down everything else with it.
What I mean is that if you have a margin account and never use
margin, I believe - unless things have changed - that you expose
yourself to custody risk that you wouldn't have without a margin
account. If you're going to have a margin account, you might
even make sure you have an unlevered account as well, since this
custody risk is reward free.
And as regards equities, a fifty percent retracement in equities
would be unexceptional given the move since 2009,and your asset
allocation should be prepared for that possibility. Being levered
might not be consistent with that. That kind of move certainly
wouldn't mean it brings down everything with it, just that it's a
hairy period of the kind that happens from time to time. It's
entirely possible to have such a move with a surprisingly strong
economy because stronger wage growth and higher rates might be
difficult for some sectors and that's not what people expect
now, and not what is priced in.
I emailed Andrei directly on lending club.
In investing, think about risk first, and consequences over
probability. Taleb is mostly right on this. The distribution of
returns isn't Gaussian.
