Quote of the Week: "The goal of markets"

I featured the following quote -- from who has since become a close friend and valuable resource of the firm -- back in 2020... While we're not necessarily smelling a durable top in the market right here, it feels every bit as timely today:

"In his outstanding, and instructional, book The Second Leg Down, Hari P. Krishnan points to the huge risk that exists when large investors are all "wired" in the same way (the last line should resonate with clients):   emphasis mine...

"If large investors are all wired to react to price moves in the same way, volatility can appear out of almost nowhere. As the financial ecosystem becomes less diverse, the risk of spontaneous crises increases. Many risk systems use similar inputs, such as volatility or the level of cross-correlation in the market. This can produce common exit points and severe congestion as a large number of systems are trying to reduce positions en masse. No amount of fundamental analysis can tell you how to avoid these so-called “flash crashes”. Flash crashes are dependent on price action and positioning. The adage that the goal of markets is to produce the most pain to the largest number of investors is appropriate here. The only defences for a lower-frequency trader are to avoid leverage or to use options as insurance.""