Friday, July 25, 2014

...differing opinions make a market......................

     Extreme price swings are the norm in financial markets - not aberrations that can be ignored.  Price movements do not follow the well-mannered bell curve assumed by modern finance;  they follow a more violent curve that makes an investor's ride much bumpier.  A sound trading strategy or portfolio metric would build this cold, hard fact into its foundations.  Exactly how depends on the resources, talents and stomach for risk of the individual;  as ever, differing opinions make a market.  But already, the mere knowledge that markets vary wildly is useful.
-Benoit Mandelbrot and Richard Hudson, excerpted from The (Mis)Behavior of Markets:  A Fractal View of Risk, Ruin & Reward

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