Godel was right indeed
Posted on July 28, 2007
Back in April we published an analysis of the current markets inspired by Kurt Godel, a famous mathematician. (forgive us the lazy lack of an omlaut here)
At the end of our ramblings we encouraged our readers to at least use options to protect their exposure to what were sure to be changing markets. Our point wasn’t to go short the markets (which would have been painful) but rather to take out capital protecting insurance. We have a nice bunch of long-term S&P puts which have completely protected the value of our long equity positions in the last week. If you didn’t you are not reading enough!
We point this out not to say we told you so. The research conclusion illustrated above is a permanent fact of markets and investing. If you are active in the market it’s essential to understand the fact that there is no reliable model of behavior and even the "expert" like Moody’s are 100% wrong sometimes. The downstream consequences are always unknowable. To have capital at risk in the market today means a commitment to risk management. Fortunately for small institutions and individuals it is easy and cheap. How many have managed the risk? If you are one who hasn’t please go back and re-read that section of the report.
– Kris Tuttle
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