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Worth the risk?

This is a chart of the Nikkei ETF – I have chosen the US listed version over the local one simply because of the higher volume, greater liquidity and therefore better price discovery.

I don’t find the panic selling of the past week very interesting, what I find interesting is that these sellers didn’t seem to have to compete very hard to find willing buyers which I find interesting. I find it perplexing because it falls into that category of trading known as hoping like hell I haven’t just done my nuts by doing something friggen stupid.

 

I think that within markets and particularly within volatile markets there is a misunderstanding of the notion of risk versus uncertainty. They are often spoken of as if they were the same thing when in fact they are very different concepts. Risk is something all knowledgeable market participants are familiar with. Every time we do a trade we deal with a risk that we have quantified. Uncertainty cannot be quantified. For example its my opinion that recent events in Japan did not represent risk but rather profound uncertainty. Now traders could undertake trades in Japan with a series of defined risks however, those risks would pale into insignificance in terms of massive uncertainty and in some ways are little better than wishful thinking. The level of uncertainty within a market situation such as Japan could not be quantified – that’s why its called uncertainty.

 

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