1. Be cautious of Normal Distributions and models that the economists show and use in their forecasts. While data is handy for decision making – don’t put all your faith in it.
2. Markets are relatively near-sighted and only remember the immediate past – if things have been good lately, investors will expect that trend to continue. And if things are bad lately, they’ll expect the future to be lousy.
Don’t be fooled by this. Like Minsky taught us, the calmer things are – the bigger spike of turbulence there will be. . .
3. Markets are rational most of the time – like 90% – but there’s that 10% of the time markets get irrational and mis-price assets significantly (like during bubbles or brutal bear markets for example).
Finding that 10% period and betting against it can be very lucrative. . .
4. Just because markets are going up and they have been for a while doesn’t mean they will continue indefinitely.
Just like the Turkey that got used to his daily life – the risks were piling up all around him.