No. of Recommendations: 0

And eventually Mike Milliken went to jail, too.

His jail 'event' was not an indication that junk bonds had higher premiums then they needed for the risks being taken. Both are facts and largely unrelated.

I agree with pretty much everything else you said. The summary to your post seems to be that the risk premiums shift for different reasons and size of market or liquidity (related I know) does influence a lot the returns.

As to six sigma. I do not know the math but you are heading in the right direct. The tail is long and the area under the curve is small. What the prices show normally are fat tails in that the prices do not follow what the theoretical curve implies. Friction in the marketplace and human nature to mis-price rare events.

There is a great book on the topic. The title if Fooled by Randomness by Nassim Taleb.

Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.