Statistically, you have an 81 percent chance of making money if you own stocks during a presidential election year. The odds on this happening in 2008 are a good deal slimmer.

There are myriads of models and strategies that purport to make investing simple and provide excellent returns.  The simple truth is that all strategies have failure rates and risks. In some cases, such as commodities and short options, it is possible to lose more than your invested capital.

Recently, financial institutions have lost massive amounts of money with model programs designed by some of the brightest graduates in the world.  Those models provided great profits in the good times but the risks wiped out massive amounts of capital in the bad times. 

There are programs for the “carry trade” (borrowing at low rates and investing with leverage at higher rates); programs for guaranteeing credit, bond defaults and mortgage pools and even programs for providing structured investments where the underwriter accepts various risks on behalf of the investor.  In all these cases, the institution accepts more risk than the capital placed upon the table.  And, in 2007 and 2008, those risks became paramount as the institutions lost billions of dollars.

So beware of magic models. If a program purports to provide exceptionally high returns for you as an investor, there is a good chance that the risk, however small, is also exceptional.