100-Year Floods Happen All the Time
We have all heard the term “100-year flood” applied to the markets. The Long Term Capital Managements of the world predicated their trading on the flood happening only once every 100 years. Reality is quite different as Hunt Taylor reminds:
“I’m wondering when statisticians are going to figure out that the statistical probability of improbable losses are absolutely the worst predictors of the regularity with which they’ll occur. I mean, the single worst descriptor of negative events is the hundred-year flood. Am I wrong? How many hundred-year floods have we lived through in this room? Statistically maybe we should have lived through one and we lived through seven now at this point.”
Hunt Taylor
Director of Investments, Stern Investment Holdings
