As long as the mathematical analysis of the risk of ruin lies beyond the understanding of the CEOs, the money managing organizations can stay competitive by employing their latest version of a return-boosting Martingale, without admitting to themselves or to others that they have been peer-pressured into the financial equivalent of selling their soul to the Devil.
-- Semyon Dukach, The real cause of the financial crisis, and the real solution -- an MIT Blackjack Team perspective
In the bond industry, they have a saying: "YBG, IBG" -- You'll be gone, I'll be gone. Remuneration and favoring of short-term performance will always encourage investors to pursue low-risk, high-cost bets in the market. It reminds me of all the funds out there with side-pocket vehicles for things like earthquake insurance. In 9 out of ten years, they are adding a healthy bit of "alpha" to their perceived returns. But in that 10th year, look out.
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