Dive into insightful proverbs that illuminate market psychology and the unpredictable nature of financial shifts. Explore how erosion of confidence can lead to crashes, stressing the importance of robust risk management. Discover the transformed ETF landscape with new dynamics and the complexities of leveraged ETFs. The conversation emphasizes the need for humility amid uncertainty, urging investors to reject the pitfalls of overconfidence and stay reflective as they navigate the ever-changing financial terrain.
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insights INSIGHT
Limits of Risk Imagination
Risk management fails because we cannot imagine extreme market events in advance.
Unexpected episodes like the SVB run and inflation surges highlight this lack of imagination.
question_answer ANECDOTE
Credit Protection Misjudgment
Greg Lipman bought credit protection at 28 basis points, thinking it was safe.
Even he couldn't imagine it would become highly valuable in the financial crisis.
insights INSIGHT
Markets Defy Certainty
Markets are a "never say never" business where prices can stray wildly from fair value.
Extreme imbalances can cause prices to spike or crash beyond all models, as seen with oil, GameStop, and nickel.
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A Tale of Hubris and Wretched Excess on Wall Street
William D. Cohan
This book provides a meticulous and gripping narrative of the events leading to the collapse of Bear Stearns, one of the oldest and largest investment banks. It exposes the excessive greed, corruption, and unethical practices within the firm, particularly the failure of its hedge funds loaded with subprime mortgages. The author, William D. Cohan, offers a comprehensive look at the power struggles among senior management, the lack of oversight, and the catastrophic consequences of their actions on the global financial system.
The big short
Inside the Doomsday Machine
Michael Lewis
The Big Short tells the story of the 2007-08 financial crisis through the lens of several key players who predicted and profited from the collapse of the housing market. The book focuses on characters such as Steve Eisman, Mike Burry, Greg Lippmann, and the founders of Cornwall Capital, who saw the impending disaster and made significant gains by shorting the market. Lewis explains the complex financial instruments and the systemic failures that led to the crisis, making the narrative both accessible and engaging.
Greetings and salutations loyal listeners, welcome to what promises to be another exciting addition to our Sayings on Vol and Risk. To set the table, last year, I did a 5-part series with 25 Sayings. These are concise statements I’ve wound up using many times over during the course of my career to help myself and others think about market risk. These pitchy proverbs are market maxims that explore the drivers of unanticipated change in asset prices.
With the first 25 saying completed in 2024, I recently added 5 new ones, getting us to 30. This podcast gets us to 35 in total.
Hope you enjoy and find interesting.
31. “Risk management suffers from a failure of imagination.”
32. “Markets are a never say never business.”
33. “Broken markets break down.” ~ Mike O’Rourke, Jones Trading
34. “This is not your father’s ETF market.”
35. “Doubt is not a pleasant condition, but certainty is an absurd one.” ~ Voltaire
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