The new year is well underway now. So far, the year is tracking much the same as the previous year ended with many of the trends continuing.
As I write this, the US S&P 500 is up around 9% so far this year. That’s roughly around the long-term average annual return.
It’s that time of year again… Summer has arrived in Australia. Santa is packing up his sleigh and readying the reindeer for their annual pilgrimage. And people in finance-land are embracing the “Christmas rally” whilst looking forward to what the next year might bring.
“Tail Risks”. That is, the possibility of an event occurring that falls outside of the “expected” set of outcomes, according to a normal probability distribution.
We might currently be in a “fat tail” situation. That is, a “higher than normal” probability of negative things happening that impact share market returns.
The Boy who cried Wolf, is a popular Aesop Fable.
More modern adaptions and interpretations deliver a broader meaning – when we are alarmed with imaginary dangers, how can we know when we need to guard ourselves against real ones?
What are the current dangers we face?