Longreads + Open Thread

Car Paint, Horror Movies, Data, AI, Marketing, Pensions, Zell, Banks

Programming note: The Diff will be off Monday for Memorial Day, back Tuesday.



Open Thread

Reader Feedback

A recent subscribers-only piece on tail-risk hedges ($) and the difficulty of using them got some great feedback; Taylor Pearson sent along this piece on how tail-risk hedging can improve long-term returns by reducing volatility drag. One of the paradoxes here is that in one sense, investors are irrationally afraid of risk and will accept lower returns in exchange for smaller drawdowns. But in another sense, they’re irrationally averse to some volatility-reducing strategies that actually improve long-term returns. Options trading wouldn’t be much of a business if the biases were uniform in all contexts, and one category of mistakes people make (including me) is evaluating standalone strategies instead of looking at how they perform in the context of an entire portfolio.

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