Markets do not usually fail portfolios. Assumptions do. Most portfolios are built with care, diversification and good intent. Many perform well for long periods. Yet when they fail, they tend to fail in similar ways — not because markets behaved unexpectedly, but because the conditions those portfolios quietly relied upon did not persist. Stability is rarely stated as an objective. It is simply assumed.
Among the most common are assumptions that: • correlations remain broadly stable, • liquidity is available when required, • volatility is temporary and mean-reverting, • time is available for recovery. These assumptions are not unreasonable. They often hold for long stretches. The problem is not that they exist, but that portfolios are rarely designed for the possibility that they fail simultaneously. Stability is not declared in portfolio construction. It is embedded by default.
