The wonderful world of Capital Markets

Fund after fund claim their performance record with an attendant disclaimer that past results
are not indicators of future results.
And this is also an industry where Risk Management is a first class activity. The sum total of resources allocated to risk management is quite significant. And yet quite regularly major catastrophic events occur rather predictably. If power companies fail comparably we would experience an uproar. If cable television were to blank out on us, even congress might act.
Cannot figure this one. If everyone is practicing state of the art risk management and catastrophic meltdowns occur system wide, we can only question the validity of the basic
practice of risk management.

The industry considers variance (or square root of variance the standard deviation)as a risk measure. The normal state is that asset prices fluctuate randomly without history or memory.
If the markets are expected to fluctuate how can an expected measure be used to predict much less manage unexpected outcomes. Though semi variance, distributions other than Gaussian
are proposed Taleb's extreme black swan events offers most promise.

Considering that most price movements (upward or downward) occur in a concentrated manner in a few sessions. It is a well known fact that a few dozen days of outlier up days can account for most of the appreciation and similarly a few dozen days of down days can account for much of the loss. So I would shock my portfolio to the top 10 downward moves for each asset held and understand the sensitivity to the portfolio. I would not consider 250 day historic volatility or other normally distributed measure.

Second, for risk management purposes, subject the portfolio to extreme correlated movements not the covariance/correlation matrix constructed out of historical data. Shock the assumptions underlying the covariance/correlation construction methods.

Every major market meltdown suggests that risk management is NOT working as practiced today. It is not! Industry is begging for sea change.