Belly Quote by Richard Thaler
“The reason is they failed to learned the primary lesson we should have learned from when Long Term Capital Management went belly up ten years ago. That is, investments that seem uncorrelated can be correlated simply because we're interested in it.”
About This Quote
Source Speech: Financial Conference, 2010
Investments that appear independent can become linked when market participants focus on them, creating hidden systemic risk.
In simple terms: Appearances of diversification can be deceptive.
Key Takeaway
Beware of hidden correlations in portfolios.
Themes
risk management
finance
systemic risk
correlation
behavioral economics
Mood
analytical
cautious
Type
insight
warning
When to use this quote
- investment strategy
- risk assessment
- regulatory policy
- asset allocation
Key Concepts
portfolio theory
herding behavior
market dynamics
Questions to Reflect On
- How do you test for hidden correlations?
- What safeguards can reduce herd‑driven risk?
A Different Perspective
Correlation risk can be mitigated but not eliminated entirely.
