“This Is Not A Tail Event”: A Subtle Reminder About Stock Market Mayhem

Large drawdowns happen a lot more often than you probably care to think about.

Oh, and as you can see, it’s becoming harder and harder to protect yourself with diversification because a “rising tide that lifts all boats” cuts both ways – it also “lifts” cross-market and cross-asset correlations to “1”…


This seems like a good time to remind you what Morgan Stanley said a few Sundays ago…


When a tail event isn’t actually a tail event.

Via Morgan Stanley

Large equity drawdowns are more common than you might think: Start at any date since 1950,and the likelihood of the S&P 500 being 15%+ lower after 12 months is 8%. But that ignores an important scenario. What if stocks drop more than 15%, only to recover before the year is out? Allow for that (i.e., down 15% or more from current levels at any point),and the likelihood rises to 18%.



Speak your mind

This site uses Akismet to reduce spam. Learn how your comment data is processed.

NEWSROOM crewneck & prints