STREET DOGS: Real markets are wild
Benoit Mandelbrot reminds investors that price fluctuations can be hair-raising
From Benoit Mandelbrot’s The Misbehaviour of Markets: A Fractal View of Financial Turbulence: Every so often, not so rarely, prices change dramatically, and today prices move much more quickly and these changes are much more important. But it has always been like that. There are stories in the Merchant of Venice by Shakespeare, and even much older books than that, which talked about the existence of a category of people, bankers, who knew very well from experience that ships sometimes went safely on a long trip and sometimes didn’t. And when they didn’t return, it was a big loss to their business. A single loss could sink a big company. Wild randomness is like the gaseous phase of matter … [there’s] no telling what it can do, where it will go. The fluctuation from one value to the next is limitless and frightening. Real markets are wild. Their price fluctuations can be hair-raising — far greater and more damaging than the mild variations of orthodox finance … individual stocks are r...
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