The Big Tail Loss
Simplify Tail Risk Strategy ETF fell 99.8% since its inception, leading to its liquidation. The Cambria Tail Risk ETF suffered a 46% loss.
One of the top 10 questions I've been asked is what I think about the markets. And my answer is always a question. What asset are you talking about? Which region? What time frame? Which direction? Prediction is a complex business.
Markets are about many predictions: when they go up, when they go down, when they move in a range, how much they go up or down, how fast they go up or down, how long they stay where they are, when they exit their state, how quickly they return to where they started, among others. There are innumerable behaviors markets exhibit.
To stay relevant in the markets, one has to understand the big five influences on investments: the big gain, the big loss, the small loss, the small gain, and no change. There's only one thing you have to address to remain relevant in investments, and that's the big loss. If you can avoid the big loss, you can stay in the investment business. Once you've incurred a big loss, recovery is improbable. This underscores the importance of diversification, risk management, and long-term perspective because in-and-out strategies are a law of ruin.
Markets "never" go negative, but they do soar up to 10,000% higher from lows. Betting on markets crashing is akin to predicting lightning—its timing and intensity.
A momentum crash is often the best time to buy, and exuberance is the time to reallocate. Shorting is acceptable as a hedge, but as a standalone strategy, it's a fool's game. I've witnessed enough wealth erosion from people waiting for a short position that first bankrupts them, then arrives, laughs, and joins the bull run again. Waiting for a crash bigger than that of 1929 has taken over 90 years. Maybe it will come. And if you're diversified, not just short, across multiple markets, you have ample opportunity to have cash, live through it and create generational wealth. War or no war, we are in times of perpetual bull.
The Black Swan narrative needs more education and explanation.
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