People do dollar cost averaging because they have regret of making one big mistake. But the fact of the matter is that, mathematically, the market rises more of the time than it falls. It falls, but it rises more of the time than it falls.
What's so seductive about the efficient markets hypothesis is that it applies nine years out of ten. A lot of the time it works. But when it stops working, you blow up.
Risk is the willingness to fail.
We poison our lives with fear of burglary and shipwreck, and, ask anyone, the house is never burgled, and the ship never goes down.
One important measurement issue concerns the fat tails problem that I mentioned earlier. VAR is concerned with extreme outcomes. If the tails of the probability distributions we are using are too thin, our VAR measures are likely to be too low.
All inquiries carry with them some element of risk.
An investment said to have an 80% chance of success sounds far more attractive than one with a 20% chance of failure. The mind can't easily recognize that they are the same.
The reality is, risk is variable. Those in the financial world know it.
