EUR/CHF tracking on S&P 500 Swissie is still acting well on risk relative to the pack… EUR-Swiss vs. S&P 500 Daily:  Black Swan Capital

Everybody knows there is some kind of food crisis. Grocery prices are painful. Wal-Mart has rationed rice purchases. Mexico has had tortilla riots due to corn prices. Rice riots have occurred Asia. China introduced laws prohibiting conversion of human food crops to fuel.

However, who would have predicted a 5 standard deviation price move for an index of 60 foods, or a 16 standard deviation move in rice prices. No, that is not a typo. Bloomberg today reported a UN Food Crisis study and related price charts revealing this food Black Swan.

At the core of the definition of Black Swan is an unpredictable and unexpected price move that is way off the chart in terms of standard deviations from the mean.

Since 3 standard deviations theoretically encompasses 99.7% of all observations, 5 to 16 standard deviations is a shocker.

We’ll have to rely on businesses and

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Investors should think about volatility as well as mean returns when planning and analyzing their portfolios.

If we could remain investors for long periods, and did not need to take money out for any reason, then volatility would be of less concern. However, the shorter the time horizon for expected withdrawals, the more important volatility (return standard deviation) becomes.

Standard deviation is an important factor in the retiree question; “Can I outlive my money?”

Proper allocation among asset classes in light of volatility is a critical aspect of portfolio design for investors who have changed, or are about to change, life stages from accumulation of assets to consumption of assets.

Real world distribution of investment returns is not so perfectly symmetrical as in the diagram below, but that “normal” distribution “bell curve” is the basis of portfolio theory about volatility risk, measured by standard deviation of returns.

Actual distributions for overall markets

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