Example 2, fictional story...ET. Say a guy is a boring accountant and dreams of becoming an at home daytrader. He is married with 2 kids. He thinks he has 2 choices. Stay at a job he hates which is safe but will support his family, or quit his job, take all his savings and go into daytrading full time. There are tons of threads on ET about this btw. Both choices are sub optimal. Why not spend most of your time doing the boring job you hate (it pays the bills and keeps the wife happy) and spend a little bit of time and money giving this daytrading a try. If he gets lucky (and I mean really lucky) and finds out he is a master daytrader, then he will be happy he took the risk. If on the other hand he loses his entire "small" experimental account and he realizes he hates daytrading, then he will be happy he never quit his accounting job. The wife will be happy too. Too often we make life decisions as either or when in reality there is a more optimal solution that both maximizes our utility and produces a long term acceptable result.
The spread between "risk free" interest and inflation hasn't changed much over the years. Looking at interest rates or returns in isolation is missing half the picture.
Those are good stories of taking advantage of free or cheap optionality. Maybe I wasn't clear enough in the OP. I'm more interested in discussing applications of this strategy as far as investing/wealth preservation goes. Like dicussing what constitutes 'boring inflation protected cash'. Calling something boring cash is subject to a big estimation errors that Taleb warns about. So he comes out and says 90% of the money should avoid risk but doesn't tell how to arrive at what is safe. What's the role of historical data on this? Should one trust governments with good reputations? How does one estimate what constitutes safety? It isn't hard to come up with dozens of examples where investors sitting on short-term government bonds got killed. In Argentina they manipulated price indexes so investors thinking inflation linked stuff is safe could end up being a turkey one day Taleb spends most of this time calling people idiots instead of actually helping people to arrive at a solution
Sure, I have some sympathy with this logic, but let's stress-test it a bit to examine its practical limitations... Suppose I am a full time finance guy, but I have this dream of getting into medicine and actually helping people. To that end I am going to devote 10% of my time to medicine. Am I likely to realize my dreams of becoming a doctor? Are you going to be very enthusiastic about hiring me as your family physician? I suppose what I am getting at is that there are some things which one can do moderately productively with 10% of their time and actually achieve something, even if that something is just satisfaction from pursuing a dream. There are many other things where this is just not possible.
That's 'cause NNT is a big picture ideas guy, who can't be bothered with trivial details... Those are for lesser intellects.
Sure Marty, there are ALWAYS impractical ideas. I'm an accountant and I would like to be an astronaut. Clearly I can't devote 10% of my time towards this or even 100% of my time past a certain age. I'm speaking broadly here. I believe most people live their lives at one extreme or another. I grew up in the Midwest where most of my friends were too scared to leave. They stayed. The end result was alcohol abuse, drug addiction obesity and divorce. Why? They were effing miserable. Hey..it happens. On the other hand, I have friends that hate their lives and say eff it, I'm going all in and moving to NY to make it on broadway. Both choices are dangerous to one's well being. Somewhere in the middle there is a better path that will protect your sanity while not living in a cookie cutter neighborhood working 9 to 5 eighty lbs overweight and hating your life. Of course one can't become a neurosurgeon in their mid 40's while spending some time on the weekends reading up on it. Leave it to you Marty to tap into the .000000001% that has that as their goal at 45 or 50.
Marty, address me with this theory not NNT since you obviously have a dislike for him. I espoused this theory long before he ever put pen to paper on it. I've been telling this to people my whole life. So respond to me personally since I'm actually here and he's not. Thanks. It will make the conversation more relevant.
Daal, here is the issue. When dealing with finance as Marty pointed out, we all define these words very differently. There are people on ET that think only making 20% a month selling options is modest and conservative (hey they could make 50% a month if they wanted to). Everyone here will get hung up on definitions. What is "safe", what is "risky". Hell there are some people here that believe the gov't is gong to confiscate any and all assets held in banks just because (you know the whole new world order thing). I think this will be challenging to have an open conversation about things that are not so easily defined. I do think the general philosophy works well in real life where I don't have to live my life by some standard definition. It turns out I'm free to make my own choices, you know that whole free will thingy.
I have sympathy with the above, so you won't elicit much disagreement from me. I just thought that it was worth pointing out the natural limits to this logic. Pls take that in the spirit in which it was offered, no more and no less. I was actually responding to daal, tbh. My comment about NNT still stands.
There are natural limits to everything Marty. I wanted to be a professional baseball player when I was 7. That didn't work. That whole natural limits thing. Of course there is also that story of a black man that said he wanted to be President of the US. I'm glad there are some people in this world that don't buy into that natural limits thing. Although in "spirit", I do believe most people should stay within reasonable limits. But that leaves a LOT of room for most people to work with.