SEM217: Richard Bookstaber, Talagent

Tuesday, April 27th @ 11:00-12:30 PM (ONLINE)

Using History for Building Forward-looking Scenarios

Richard Bookstaber, Talagent

ABSTRACT: Almost by definition, a scenario is something out of the ordinary. It is a “what if” that is material enough to move us outside the frame of our every-day market picture. We construct a scenario when we cannot take the relationships of the past few years and project them forward. Because this is a step beyond the future-looks-like-the-past approach of day-to-day risk management, it is important to build them with a combination of investment acumen and analytical power. At its core a scenario is not a number, it is a narrative.

Like a thriller, it is a story that drives forward with twists and turns. It has a catalyst that gets the action going, like the set-up at the start of a thriller. It has the current market environment as its setting. And the scenarios rest within various genre.

In building scenarios I take a page out of the methodology used by Ray Dalio at Bridgewater. During my time at Bridgewater at the crescendo of the 2008 Crisis we looked to past crises to gain perspective in building a scenario for what might transpire this time around. We analyzed events as far back as the Weimar Republic can give us clues for what to expect. Here we only go back as far as the post-WW II period. Can these past events illuminate our building of forward looking scenarios? Well, as Mark Twain is reputed to have said, history doesn’t repeat itself, but it often rhymes.