I observe. What I've observed in the past can be seen in my posts which date back to July 2013. Two years later, it's been interesting and informative watching how things have progressed and unfolded.
The causes of the declines in almost all asset classes have ALL been forecasted perfectly in hindsight: the narratives constructed are both tight and logical, very appealing to our need for pattern recognition and desire for plot.
Without predicting causes or direction, but by simply observing initial conditions and comparing them to history could have provided a reliable sextant or compass to navigate the unpredictable and uncertain seascape or landscape.
Have a time horizon, know your tolerance for loss and recognize that capital, like it's counterpart debt, is not an infinite quantity. Debt (carry trades) is particularly insidious. Closing a carry trade takes borrowed money out of assets (selling the asset) BUT does not create "money on the sidelines" that can be redeployed... it reduces debt but it is not free capital.
Risk is about paying irrational prices for assets, and future returns are dependent on the price you pay and the sustainability and quality of the future cash flows of the underlying asset. You can't always sell your asset to the greater fool, but you can abstain from being the fool who is driven by emotion and the need to be part of the herd.
The dynamics and the behavior that drive markets apply to markets that rise and markets that fall. Mental flexibility and mental agility will be important to be able to continue to recognize were we are and how we got here; the famous initial conditions that determine (not predict, the outcomes are multiple) the "behavior" of non linear, complex systems.
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