“There is in the course of human events no stability and consequently no safety.”
—Ludwig Von Mises1
Flights to safety and quality periodically arise during financial crises or periods of sustained market turbulence. Fear replaces greed as the main emotion in the market, and the effects are devastating. Sometimes capital preservation is the primary goal. This chapter is about fear—the fear of large losses—and about how traders behave in the face of such fear. It is about the flight to safety.
At their heart, all flights to safety or quality are attempts to reduce risk. Ironically, the flight itself can be fraught with risk. Once there, remaining invested in safer assets may entail considerable opportunity cost—as ...