Memento Futuri

October 2018
Memento Futuri
Scenario thinking is one of the most important tools in this area; an in-depth process of mental modelling allows us to create a more robust portfolio, equipped to react and adapt to signals more quickly.

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Our industry relies to a large extent on “equilibrium models” to construct portfolios. In these models:

  • Decision-makers are rational
  • Probability distributions are predictable

Unfortunately the real world is more complicated, which is why:

  • Models have done a lousy job of forecasting investors’ actual experience
  • Well-intentioned decisions based on models can be misguided

We prefer to see the world as it is:

  • Highly complex
  • Fundamentally uncertain

Our perspective is not defeatist.

But it does force us to think differently about portfolios and risk.

We use scenario thinking:

  • To build robust portfolios . . .
  • That we can adapt quickly to market signals . . .
  • Because these signals remind us of scenarios we envisioned

Memories of the future. Memento futuri.