I’ve flown a lot over the years, and I understand first-hand how all of the little details like packing, efficiently getting through security, and getting settled on the plane become so routine for frequent travelers that they can do them without even thinking. But occasionally life throws you a curveball, just as it did on a recent flight where I was without my normal headphones. Stuck for several hours with nothing but the drone of the engines to keep me company, I can’t say I was thrilled but it turns out it was just the inspiration I needed to explain a complicated concept:
How do consistent portfolios full of volatile assets actually work?
Sure, I could go into a detailed discussion of covariance, standard deviations, and the complicated math behind efficient portfolio construction, but frankly I know I would quickly lose most people and even bore myself in the process. So inspired by the the desire for silence I normally take for granted, let’s step back and think of the problem a little differently in terms we can all relate to — noise.