Benoit Mandelbrot (1924- 2010)

I have read The Misbehavior of Markets: A Fractal View of Financial Turbulenceabout 100 times, so naturally I was sad to hear of his passing.

“Brokers often advise their clients to buy and hold. Focus on the average annual increases in stock prices, they say. Do not to “time the market,” seeking the golden moment to buy or sell. But this is wishful thinking. What matters is the particular, not the average. Some of the most successful investors are those who did, in fact, get the timing right. In the space of just two turbulent weeks in 1992, George Soros famously profited about $2 billion by betting against the British pound.

Now, very few of us are in that league, but we can in our modest weight take cognizance of concentration. Suppose big news has inflated the stock price by 40% in a week, more than twice its normal volatility. What are the odds that, anytime soon, get another 40% run will occur? Not impossible, of course, but certainly not large. A prudent investor would do as the Wall Street pros: Take a profit.”

Quote taken from The Misbehavior of Markets: A Fractal View of Financial Turbulence.

Benoit Mandelbrot died last week at the age of 85.

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