Oct 09
Black Swan Event
Geoff Considine wrote the following in a Yahoo discussion group.
“Okay, the market is down 32% for the YTD through 10/7/2008. Using three years of data through 12/31/2007, QPP estimates a 0.1% chance of a loss of 31.6% or worse–we have experienced roughly the 1-in-1000 tail so far for the first 280 days of 2008.”
It is my gut feeling that now is the time to set limit orders for ETFs where asset classes are either empty or out of balance. I set several limit orders this morning and will likely do more over the next few days. It is time to put cash to work, assuming you have cash.
My limit orders were not set close the the current price as I think we still have further to drop. But the faint-of-heart are bailing out of the market.
Lowell Herr
Photograph: Florence, Italy
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October 9th, 2008 at 7:04 am
Lowell,
This is obviously an exceptial “event” with all the credit and housing problems climaxing simultaneously. For that reason I wonder if a probability calculated from a 3-year average is the appropriate time period. I would guess something based on decades is a better measure.
Bob Warasila
October 9th, 2008 at 7:18 am
Bob,
I can set the time limit to be 10 years. What I will need to do is set up a portfolio of similar index funds as the Vanguard ETFs do not have a 10-year record. Maybe I can do this later in the morning.
Lowell