Nassim Taleb makes the rounds again

[Dr_Risk]

nassim nicholas taleb to me
Hide options 2/25/05

From: nassim nicholas taleb <xxx@fooledbyrandomness.com> Mailed-By: tmo.blackberry.net

Reply-To: xxx@fooledbyrandomness.com
To: "xxxxx@xxxxx.com" <xxxxx@xxxxx.com>
Date: xxx xx, 2005 xx:xx AM
Subject: Di italia
Reply | Reply to all | Forward | Print | Add sender to Contacts list | Delete this message | Report phishing | Show original | Message text garbled?

Hi there I am in italy enjoying the good life and wondering about idiots like you who do not have the guts and the balls to reveal their identity.
Best,
NNT

Sent wirelessly.


Unsolicited email I received while he was apparently traveling in Europe. Must have left his meds at home.

 

[marketsurfer]

Quote from Maverick74:

For those

If any of you get the chance to see the new Woody Allen film "Match Point", it focuses on the role luck plays in our everyday lives and how little control we really have. I look forward to Taleb's new book "Black Swans" as it will go more into how luck plays a role in society as a whole vs just the trading environment.

i saw that movie last night. great movie! has my highest reccomendation, totally enjoyable. best allen movie by far.

does the playing the opposite of historic records hold any water? buying the worst performing funds of the year rather than the top performers??

surfer

 

[marketsurfer]

Quote from Dr_Risk:

nassim nicholas taleb to me
Hide options 2/25/05

From: nassim nicholas taleb <xxx@fooledbyrandomness.com> Mailed-By: tmo.blackberry.net

Reply-To: xxx@fooledbyrandomness.com
To: "xxxxx@xxxxx.com" <xxxxx@xxxxx.com>
Date: xxx xx, 2005 xx:xx AM
Subject: Di italia
Reply | Reply to all | Forward | Print | Add sender to Contacts list | Delete this message | Report phishing | Show original | Message text garbled?

Hi there I am in italy enjoying the good life and wondering about idiots like you who do not have the guts and the balls to reveal their identity.
Best,
NNT

Sent wirelessly.


Unsolicited email I received while he was apparently traveling in Europe. Must have left his meds at home.

what prompted this response??

surfer

 

[Dr_Risk]

Quote from marketsurfer:

what prompted this response??

surfer

Apparently my wording isn't clear. The email was unsolicited. Therefore, NNT's email wasn't a response. I believe it may have been a case of mistaken identity.

 

[Maverick74]

Quote from marketsurfer:

i saw that movie last night. great movie! has my highest reccomendation, totally enjoyable. best allen movie by far.

does the playing the opposite of historic records hold any water? buying the worst performing funds of the year rather than the top performers??

surfer

Surf,

No, I don't think you want to fade these funds. I think the one advantage you have to buying a fund that appears on paper to have really bad numbers is that one, you know to expect large drawdowns, therefore there is no surprise factor. Two, the fund manager is also aware of the risk and hits his fund has taken, and if he is still around and his fund is still active, then he cleary has the temperament to withstand the losses.

This is one of the areas of finance that does not get talked about and I have mentioned it a few times on ET when people ask me why I want to see traders trade in real time vs just looking at their sheets as a way to evaluate them.

See, when traders are making money, all is well and they are executing their plan whatever the plan and strategy is. What you don't know, is how will a trader handle himself when he is under heat. When he is sitting on large losses, when things are starting to happen that he never dreamed of happening.

Now, how does he handle that, what decisions does he make. Does he double up in anger, does he keep averaging down, does he throw all his risk parameters out the window in panic to quickly try to make his money back?

See, this is the kind of stuff that doesn't show up on the sheets or the performance reports. This is the kind of stuff investors only find out about AFTER the fact. sharpe Ratios will reveal nothing about this. Neither will max drawdown figures.

So the advantage I see of going with a fund that has a large drawdown is again, the fact that the manager was able to recover from the heat he had to take. A fund manager that has not had a large drawdown (yet), has not revealed how he will act under those same circumstances. Another words, it will be a surprise!

 

[iloveoptions]

Quote from Maverick74:

For those of you that read the Trader Monthly article or the one in Active Trader, the articles weren't so much about him, but rather about the fallacy of historical performance as it relates to determining the risk of an individual trader or fund. I find this area of finance fascinating, especially in light of the 12,000 or so hedge funds out there.

I've always laughed at the Sharpe Ratio as a way of measuring risk for a fund. Or the min and max drawdowns that funds like to advertise. They tell you nothing about a fund. Well, that's not entirely true. Bad numbers certainly reveal many red flags, but the problem is, good numbers don't necessarily mean the fund is any better.

Taleb spends a lot of time explaining the difference between evaluating how risky a fund has been in the past vs how risky it could be going forward. As an options trader myself, I have a very intimate understanding and respect for risk. And since I now run an office and have to look at new traders and their risk profiles, it's fascinating to see how dangerous they are, yet how well they hide it. I can see through the BS pretty fast. What's even more amazing is they don't even realize they are BSing me. They really truly do not see their own risk and they are completely ignorant of it. I see a lot of that on ET.

This is one of the reasons I found Taleb's "Fooled By Randomness" book so interesting. It forces us to look beyond our own reflection in the mirror and instead think about what our reflection could look like in a different time and under different circumstances. I think many of us are scared to really admit, that luck plays a much larger factor in our lives then we care to admit, especially with trading. Because with luck as a variable, we have to come to terms with the fact that we do not have as much control as think we do, it's really quite scary if you think about it.

If any of you get the chance to see the new Woody Allen film "Match Point", it focuses on the role luck plays in our everyday lives and how little control we really have. I look forward to Taleb's new book "Black Swans" as it will go more into how luck plays a role in society as a whole vs just the trading environment.

You can make your own luck in trading if you have a true cutting edge technique and a super disciplined mentality. That's what trading is all about. There are no shortcuts to this business. Hard work and passion for trading go hand in hand. Sure, once in a while, you'll get a bad hand "black swan". If you're experienced enough though, you'll get out of it unharmed.

 

[Maverick74]

Quote from iloveoptions:

You can make your own luck in trading if you have a true cutting edge technique and a super disciplined mentality. That's what trading is all about. There are no shortcuts to this business. Hard work and passion for trading go hand in hand. Sure, once in a while, you'll get a bad hand "black swan". If you're experienced enough though, you'll get out of it unharmed.

You obviously did not read nor understand the integrity of my last post.

 

[momoneythansens]

I take youre point re: luck and I'm a firm believer in the very large role it plays in life. However, I cannot agree with your endorsement of the film Match Point LOL. It was bad luck for me to be dragged to see it and I will never be able to get those 2 hours of my life back

Quote from Maverick74:

For those of you that read the Trader Monthly article or the one in Active Trader, the articles weren't so much about him, but rather about the fallacy of historical performance as it relates to determining the risk of an individual trader or fund. I find this area of finance fascinating, especially in light of the 12,000 or so hedge funds out there.

I've always laughed at the Sharpe Ratio as a way of measuring risk for a fund. Or the min and max drawdowns that funds like to advertise. They tell you nothing about a fund. Well, that's not entirely true. Bad numbers certainly reveal many red flags, but the problem is, good numbers don't necessarily mean the fund is any better.

Taleb spends a lot of time explaining the difference between evaluating how risky a fund has been in the past vs how risky it could be going forward. As an options trader myself, I have a very intimate understanding and respect for risk. And since I now run an office and have to look at new traders and their risk profiles, it's fascinating to see how dangerous they are, yet how well they hide it. I can see through the BS pretty fast. What's even more amazing is they don't even realize they are BSing me. They really truly do not see their own risk and they are completely ignorant of it. I see a lot of that on ET.

This is one of the reasons I found Taleb's "Fooled By Randomness" book so interesting. It forces us to look beyond our own reflection in the mirror and instead think about what our reflection could look like in a different time and under different circumstances. I think many of us are scared to really admit, that luck plays a much larger factor in our lives then we care to admit, especially with trading. Because with luck as a variable, we have to come to terms with the fact that we do not have as much control as think we do, it's really quite scary if you think about it.

If any of you get the chance to see the new Woody Allen film "Match Point", it focuses on the role luck plays in our everyday lives and how little control we really have. I look forward to Taleb's new book "Black Swans" as it will go more into how luck plays a role in society as a whole vs just the trading environment.

 

[Maverick74]

Quote from momoneythansens:

I take youre point re: luck and I'm a firm believer in the very large role it plays in life. However, I cannot agree with your endorsement of the film Match Point LOL. It was bad luck for me to be dragged to see it and I will never be able to get those 2 hours of my life back

Well, people seem to either really like it or really hate it. I happen to like Woody Allen films and I also happen to like films that draw on Brittish humor. I also happen to really like Scarlett Johansson.

 

[iloveoptions]

Quote from Maverick74:



See, when traders are making money, all is well and they are executing their plan whatever the plan and strategy is. What you don't know, is how will a trader handle himself when he is under heat. When he is sitting on large losses, when things are starting to happen that he never dreamed of happening.

Now, how does he handle that, what decisions does he make. Does he double up in anger, does he keep averaging down, does he throw all his risk parameters out the window in panic to quickly try to make his money back?

See, this is the kind of stuff that doesn't show up on the sheets or the performance reports. This is the kind of stuff investors only find out about AFTER the fact. sharpe Ratios will reveal nothing about this. Neither will max drawdown figures.

So the advantage I see of going with a fund that has a large drawdown is again, the fact that the manager was able to recover from the heat he had to take. A fund manager that has not had a large drawdown (yet), has not revealed how he will act under those same circumstances. Another words, it will be a surprise!

I can relate to that very very well.