An accepted tenent of investing has been that returns group in a "normal distribution" around long-term averages. As the thinking goes, some years are good, some bad but the possibility of really good and especially the really bad are so remote as to be somewhat dismissed. The time period that started about two years ago with the September 15, 2008 bankruptcy of Lehman Brothers taught everyone that there was a very distinct possibility of really, really bad returns.
Now some are coming forward with studies to support the idea that the chances of bad returns are really much higher than had been previously thought. The statistical probability of really bad returns occurring in any quarter by one study is about 5 times higher than previously thought. The statisticians call such return outliers "fat tails" to describe their higher frequency than the "thin tails" previously assumed. A very good study on this was recently released by Welton Investment Corporation and can be found on their web site at http://www.welton.com/. We recommend this study to all who want to better understand the risks of investing going forward.
