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Is the market a time machine?

June 8, 2012

Is the market a time machine? And if so, what time is it?

The answer, of course, is yes,  many of us do think that the market is a “time machine” because we expect that the past will be repeated in the future as far as our portfolios are concerned (called mean reversion) and that if we know what is now and we know the past (by statistics or experience), then we have a better chance to be right in the future.

That’s nonsense of course. We really don’t know “now” at all – check it out in the daily news – and we don’t know the past either in the sense of being able to attribute “cause” to “effect”. As far as our portfolios are concerned, we don’t know anything, now, if all we have are statistics, experience, and no active provable technology of risk aversion that at least puts a floor on our rightfully expected future losses (the authorities are Nash 1953, Rubinstein 1982, and Goetze 2009).

As pensioners for whom it’s a matter of bread and butter, we need to laugh out load (lol) when one of our leaders stands up in a public forum and blandly announces that “he is not interested in holding an inquiry that could shed light on how the provincial pension fund manager lost almost $40 billion in 2008” ( The Canadian Press, May 25, 2010).

How does one “lose” $40 billion? One could sink twenty drilling rigs in the North Sea, or one could “waste” the entire life-time earnings of twenty to forty thousand average Canadians, a small village in the Gaspé, for example.

Both events are sudden and “unexpected” but the recovery takes much longer as our leader is finding out in 2009 and thereafter. Is then a small village in the Gaspé “ not important at the moment in the life of Quebec. What counts is the future and building a strong organization.” Indeed, he says a “performance-based culture” to which we suggest give us “3% plus inflation, every year, no matter what” guaranteed, or you’re out, now.

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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