Nassim Taleb?

That's silly.

But that's exactly the point... There's a lot of people out there who are making the sort of point he's making, without the sturm und drang, the intellectual superiority and with a lot more substance. Taleb, with his typically superior and yet shrill tone, drowns out people who actually have something meaningful to say on these matters.

 

When I first picked up Black Swan a few years ago I thought Taleb read like an arrogant conceited fool. I couldn't stand him. Of course I considered this a good sign because if I like somebody's personality too much I won't be nearly as critical of their message -- so I continued reading. I've recently come across a copy of his earlier book "fooled by randomness" and I'm reminded of the constant frustration I felt while reading black swan. Taleb is a brilliant idiot. You could say he's a visionary in some respects, and blind in others.

Here's one example I couldn't get over while reading black swan. The entire message of the book is that nothing is certain -- you can't look at a current trend in time series data and assume that the trend will continue indefinitely -- when viewed over a longer time period it may turn out to have simply been noise (or randomness). Then he goes and says that's why he doesn't trust anything except treasuries (which he apparently considers to be the only thing that's certain). Are you kidding me? He of all people should see that US treasuries are one of the biggest potential black swans out there. Sure, they've been stable for nearly a hundred years, but Taleb consistently says we should look to history (eventually every empire crumbles) and then he goes and says something else that clearly demonstrates he's missed his own point. This is somebody who's lived first hand through a fallen government regime.

Maybe he'd argue that if the US government goes insolvent that it doesn't matter because if the system fails, everything he has is worthless anyway. This is somebody who's lived first hand through a regime change. He of all people knows the world goes on even if the world around you seems to fall apart. Of course maybe this is just another black swan he's keeping up his sleeve. Why tell the world all your secrets.

Like I said, I'm currently reading fooled by randomness and I had to put the book down when he started lambasting "The Millionaire Next Door." Based on his critiques, I find it hard to believe he even read the book. He seems to have completely missed the point. The book isn't praising saving as a some morally superior act. If I recall correctly (it's been quite a while since I read that one) it does talk about lifestyle smoothing and decreasing marginal utility of consumption (you can maximize your lifetime utility by spending consuming the same amount every year which requires saving money during your peak income years so you can spend it in other years). Mainly the book was trying to dispell the illusion that income and conspicuous consumption go hand in hand. Those who conspicuously consume more are not necessarily those who are making more, nor those who have more in reserve. I would say that was the core point of the book. Taleb may have missed that because to many of us that point was so obvious to begin with. For those of us who already knew this before picking up the book though, it's important to understand that the majority of the world doesn't get this. They think people who spend lots of money must be rich (and I imagine some might be so deluded to think that the key to becoming rich is to spend more money). The key to accumulating money is simply to spend less than you make. Seemingly obvious and yet a concept so many people in modern day culture fail to grasp.

 

Dismissing Taleb's work because Treasuries might experience a black swan as well misses the point.
He's saying risk managers take on risks they don't understand because they rely on unreliable "correlations" and assume "normal distributions" which do not apply in finance, hence a preference for the least risky asset, which may not be "risk-less" indeed.
As to judging him because he does not like "Next door millionaire", that's like not liking Ferraris because you don't like the shape of the ashtray.
I had a chance to meet him. He's very approachable. Maybe not to the average uneducated hillbilly baked into iron-cast certainties, but to a normal person, yes.
His contribution is built on Popper, Mandelbrot, Kahneman and others. Very relevant for traders, but it seems to escape most posters here.

 

In a May 2010 interview, Taleb advocated investing only in metals, agriculture, and using options on stocks, particularly the US market as is it a ponzi thanks to Bernanke. I would not bet against him.

 

The main messages I got from his work was:

1. People in general have poor understanding of probabilities.
2. Too much credit is given to "skills" not enough to randomness.

Both are extremely relevant to trading in my experience.

Ninna

 

As in anything else in trading one cannot treat a theory literally. “Black Swan” and “Fooled by Randomness” are the books that have outlined a point of view that prompted me personally to research certain areas of options theory that I thought were researched by others to death. I thought that all the option structures have been thoroughly investigated and their pay-offs were carved in stone. However, to my astonishment, I have discovered many things that were so different from the commonly accepted theory that led me to discover the whole uncharted territory of previously unknown option constructs. The Mandelbrotian type of probabilities and Taleb’s beliefs in the frequency of significant events have changed the way I was able to calculate the option values and prompted me to look into dynamic type of option constructs that are called “The Replicates”. This, in tern, has led my team to series of very important discoveries that one day we hope we can publish. So, Nassim Taleb has at least helped me and, I am sure to others in changing of our beliefs of what the “randomness” is. It probably would not tell much to 99% of people who read Taleb’s books, but it definitely inspired me and I am eternally grateful for that!

Cheers,
MAESTRO

 

Study options a bit and it won't be cryptic at all. If you collect premium up front you are shorting gamma and therefore betting against a Black Swan, and expressing your faith in the pricing of the options, which is usually based on a view of the world where probabilities vary smoothly the further you get from the price of the underlying.

 

Erm, and your point is what?

As to betting against Taleb, I think his trading track record is quite well known.

 

I don't like Taleb just like I don't like most pundits. He is not really interested in making sound economic predictions but rather keeps saying outrageous things that would attract the attention of the media.

What is the great message he's sending across? Is is news to me (or anyone) that tomorrow is unpredictable? No, that's pretty clear without Taleb. Are low probability events underpriced by the market? Probably not, there are so many people interested in protection that it's pretty unlikely. Is it worth being a seller there? - probably not, cause its hard to price. Is it worth being a buyer there as the only strategy? - probably not, cause it's hard to price. Is it worth buying his book number 4? - definitely not.

 

That is exactly what he is trying to say - "making sound economic predictions" is a fool's game!

Cheers,
MAESTRO