Nassim Taleb's `Black Swan' Investors Post 50% Gains as Markets Take Dive

[Sbelmont]

So basically this guy is buying far OTM strangles on his long underlying positions?

That's it? He's right when he says that strategy is only going to break even most of the time, if that. Loading up on OTM premium is expensive and will erode any gains from the long underlying position. Unless you happen to have a six sigma event like we saw in the past week. Then you look like a hero.

However, there is a reason that he closed his original hedge fund in 2004.

 

[Pippi436]

Yes that's his strategy. Put x% of capital in very deep OTM options, wait for the big bang and hope there's enough monies to survive until then.

 

[Random.Capital]

Quote from RedDuke:

For 6+ years after 911 there were no black swans...

Sure there were - he made a killing on the oil bubble. Black swans aren't limited to bearish events.

Investors who left Empirica by and large got caught wholesale by the CDS mess. It's tough for a typical money manager to put funds in a place like Taleb's because our reporting structure is set up to reward excessive short-term returns and smooth (until they aren't) equity curves. And that's obviously not what crisis-hunting provides.

It's a very difficult style of investing to do - not conceptually, that's relatively easy - but emotionally it is not easy to accept the lumpy returns that come with a win rate of 5-10-20%.

...hope there's enough monies to survive until then.

There are - and then some. But it requires a special kind of patience...

 

[JamesVU2000]

In "Fooled By Randomness" he writes about the anguish of losing little bits day after day.

 

[kinggyppo]

Here is the full talk:

http://fora.tv/2008/02/04/Future_Has_Always_Been_Crazier_Than_We_Thought

By the way he says that the current crisis was a predictable white swan.

 

[robbie380]

taleb sucks.

 

[FM_Tarwater]

Quote from Sbelmont:

So basically this guy is buying far OTM strangles on his long underlying positions?

That's it? He's right when he says that strategy is only going to break even most of the time, if that. Loading up on OTM premium is expensive and will erode any gains from the long underlying position. Unless you happen to have a six sigma event like we saw in the past week. Then you look like a hero.

However, there is a reason that he closed his original hedge fund in 2004.

I remember reading somewhere his strategy was the selling ATM vol while going long tails. It centers around the idea that return distributions not only have fat tails, but also have a "pinched" or "peaked" center. Also, the short atm vol position should somewhat consistently "pay the bills" and finance the price of the way otm tails.

Tony Saliba described a similar idea while being interviewed in market wizards.

 

[PJT]

Quote from Equalizer:

He is one angry mofo

http://www.youtube.com/watch?v=ABXPICWjFIo

I see no anger in that video.

He's got some wild idea's and theories.

I like him.

He stretches the mind.

Some great stories about hero's to zero's in Fooled By Randomness.

As a trader if you don't change and adapt (sometimes several times a day) you are toast.

 

[stock777]

Taleb is a genius.

Anyone who thinks otherwise is the opposite.

 

[Pa(b)st Prime]

Quote from stock777:

Taleb is a genius.

Anyone who thinks otherwise is the opposite.

Completely agree. He exposed the flawed hedge fund game of ST positive<strike> expectancy</strike> results via carry trades, yield curve steepeners and shorting premium YEARS before these managers imploded. I said once on ET-not in jest-he should be a Nobel candidate. Certainly 10x smarter than that socialist cracker Krugman......