Andrew Bird‘s main instrument is the violin. He plucks. He bows. He feeds musical phrases into a loop pedal and adds layer after layer after layer. He whistles. He sings. He plays guitar. And xylophone. He performs solo and with backing musicians.
Modern Western civilization stands on the twin plinths of science and technology. Taken together, these two interrelated domains reassure us that the 19th-century story of never-ending progress remains intact. Without them, the arguments that we are undergoing cultural decay — ranging from the collapse of art and literature after 1945 to the soft totalitarianism of political correctness in media and academia to the sordid worlds of reality television and popular entertainment — would gather far more force. Liberals often assert that science and technology remain essentially healthy; conservatives sometimes counter that these are false utopias; but the two sides of the culture wars silently agree that the accelerating development and application of the natural sciences continues apace.
Yet during the Great Recession, which began in 2008 and has no end in sight, these great expectations have been supplemented by a desperate necessity.
A Value Investor’s Perspective on Tail Risk Protection: An Ode to the Joy of Cash
Long ago, Keynes argued that the “central principle of investment is to go contrary to general opinion, on the grounds that, if everyone is agreed about its merits, the investment is inevitably too dear and therefore unattractive.” This powerful statement of the need for contrarianism is frequently ignored, with disturbing alacrity, by many investor.
As always, a comparison between price and value is required. One of the nice aspects of insurance in an investment sense is that it is generally cheap when its value is highest (although this may no longer be the case given the rise of so many tail risk products). That is to say, because most market participants appear to price everything based on extrapolation, they ignore the influence of the cycle. Thus they demand little payment for insurance during the good times because they never see those times ending. Conversely, during the bad times, the average participants seem willing to overpay for insurance as they think the bad times will never cease.
via A Value Investor’s Perspective on Tail Risk Protection: An Ode to the Joy of Cash by James Montier