“A two sigma is the kind of deviation that should occur every 44 years. Because we’re a little wilder and less efficient than we should be,it happens every 35 years. Every 35 years feels about right…one event in a career and twice in a lifetime.
Three sigma events should occur once every 100 years. Now we, as I like to say, do crazy pretty well as a species. Therefore, three sigma events occur much more often than they should, and they are out of kilter much more than two sigma events.
With two sigma events, you can have some reasonably standard bubbles. They give you a certain amount of pain in the minus 30, 40 to 50% area. Super bubbles can pretty much wipe you out like 1929. And that’s where we are now.”
– Jeremy Grantham,
Co-founder and Chief Investment Strategist of Grantham, Mayo, & van Otterloo (GMO)
"From an investment perspective, the picture to me is clear. Hedge long-biased equity exposure and/or raise cash. When the market reverts to the mean (the dotted blue line), that is a point in time when we can expect average nominal returns in the +/- 10% range. If you are sitting on a lot of cash, remain patient. The average trend line is around 2,500 in the S&P. That’s a pretty good target."---Steve Blumenthal
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