i lied yesterday

Alright, confession time.

Yesterday I told you markets follow the bell curve.

That was... not entirely accurate.

Actually, it was bollocks.

But I had to start somewhere.

Here's what's really happening…

Real market returns look nothing like that perfect bell curve.

They're what academics call ‘fat-tailed’ - which is a nice way of saying ‘mental things happen way more often than they should.’

Think about it…

If markets truly followed the bell curve, the 1987 Black Monday crash (22% drop in one day) should happen once every 3.4 billion years5.

But we get crashes like this roughly every decade.

The 2020 COVID drop? March 2020 saw moves that were supposed to be ‘6-sigma event’ - happening multiple times in a single week.

According to normal distribution theory, that's like winning the lottery while being struck by lightning whilst riding a unicorn.

But it happened.

This is why traditional portfolio theory (the stuff your financial advisor learned in 1987) is fundamentally flawed… see how the risk parity fund has not done well recently (funds that tended to focus 60/40, equities to bonds).

It assumes markets are well-behaved, rational, and follow neat mathematical patterns.

Reality check: markets are run by humans.

Humans panic. Humans go mental. Humans buy GameStop at $400 because someone on Reddit told them to.

Research from multiple academic sources shows that stock returns exhibit ‘skewness, higher kurtosis, heavier tails, and a more pronounced centre’ than the normal distribution predicts.

Which means extreme events happen more often, and when they do, they're more extreme than your bell curve suggests.

So why did I start with the bell curve yesterday?

Because you need to understand the theory before you can appreciate why it's wrong.

Tomorrow, I'm going to show you exactly what these ‘fat tails’ mean for your money - and why understanding them is the difference between surviving market crashes and getting absolutely decimated.

P.S. - This is why I don't trust anyone who says ‘past performance doesn't indicate future results.’ The past is literally all we have to work with, and the patterns are there if you know how to look.

Perhaps there are some hints in the first YouTube video on the channel…

And here are… fat tailed returns using leverage in action.

For those of you who have experience, this could be an excellent way to access the short side, with leverage, within a tax wrapper.

I always advise caution and you MUST know what you’re doing here.