Welcome back to the digital saloon, where the turkey isn’t the only thing getting carved this week. As we drift toward a holiday built on gratitude (and stuffing), let’s give thanks for something else entirely: the humbling reminder that the past is a terrible forecaster of the future.
Modern finance operates under a quiet delusion:
that what we’ve observed is the full menu of what can happen.
It isn’t.
As Elroy Dimson famously put it:
“Risk means more things can happen than will happen.”
A line so simple that most financial models immediately ignore it.
Relying on observed frequencies—the stuff we can neatly count and chart—creates the illusion of certainty. It tells us the world is calm, stable, and predictable. A lovely story, completely false.
The markets live not in the tidy middle of the bell curve but in the uncharted corners. The improbable disasters. The “this wasn’t supposed to happen” events.
If you’ve ever wondered why models blow up exactly when you need them not to—this is why. They are backward-looking by design.
Financial Takeaway:
Don’t confuse the narrow sliver of reality you’ve observed with the full distribution of possibilities. The world is constantly changing, and sometimes the thing that “never happens” shows up precisely because everyone believes it can’t.
Be grateful—but don’t be complacent.
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