Taleb vs Assness on tail hedging and risk parity
- Thread starter Daal
- Start date
I've read the entire flame war before Assness pulled out and it was hilarious to watch two airy fairy academics spitballing each other.
But Taleb is a fking psycho. His books are good food for though but I would not trust him to handle a single cent of my money.
His trading philosophy just doesn't match reality.
But Taleb is a fking psycho. His books are good food for though but I would not trust him to handle a single cent of my money.
His trading philosophy just doesn't match reality.
proof?
Look at the performance of universa investments.
These guys are paying premium for 12 years straight...then one day they boast a 4000% return just to hibernate again.
If they would not manage AUM, nobody made any money. Betting on tail risk is +EV but it scales horribly. If you have 100k and you lose 10% each year in premiums for 12 years straight and then 40x your money, you would have 10x'ed your initial investment...but can you bear losing 12 years straight without doubting yourself that what you doing is correct? Plus the result is not even adjusted for inflation...
And how do you make sure that you always, always, always follow your strategy. I mean, what would you do if at the exact moment you are ought to cash in you are in the hospital and not invested?
It's like betting on a +EV lottery. Yes, it's +EV on paper but the probability of winning is so small and the frequency so low that you need to live like 1000 years to win this game.
And in the long run we're all dead.
I think options markets will come to the realization (yet again) that they still underprice tail risk and the frequency thereof. Taleb's approach may not sit right with many of the quick and easy gun slingers on Wallstreet and beyond but he has a sound approach and I don't know a lot of guys who have a keener understanding of options pricing and risk management than Taleb.
Look, I don't wanna continue the twitter flame war here on ET.
We're not talking about knowledge - Taleb 100% knows a lot about options - we're talking about a sound investment approach.
The options market does not underprice tail risk if you are looking at the bigger picture (aka. the +theta call of short gamma funds).
Taleb is all about academic masturbation and while there are fund managers that only know 1% of what he knows, they are 100x more successful than him because they understand the game.
So let's just agree to disagree.
You are assuming that he bought tails equally every year, year after year. What if the trades were uneven based on some statistics?
For example, after one big payoff this year, perhaps next year the probability of another tail even is much smaller so he might bet a smaller amount and as years gone by without an event, starts betting bigger and bigger?
I am just a retail, so this is amateurish speculation.
Universa is not your average absolute return fund. They clearly state they want a small percentage of your money to protect you from tail risk in a very shitty year
Taleb is a value investor. Based on his valuation models he believes volatility and risk to downside is priced cheaply, so he buys them. We can understand value of money, some of us can understand time value and compounding, very few understand volatility value of money. In a sense not much different than buying KO and holding for 20 years
Well yeah, I probably must disagree with someone who disagrees with the notion that tail risk is underpriced and the disagrees with the explanation given by responding with "that ain't so because you don't look at the big picture".
By the way, Universa is exactly covering what it promises to cover. Speciality insurance if you like. In that they come closer to fulfilling their fiduciary duty than many other funds, to deliver what they promise, not in terms of return numbers.
By the way, Universa is exactly covering what it promises to cover. Speciality insurance if you like. In that they come closer to fulfilling their fiduciary duty than many other funds, to deliver what they promise, not in terms of return numbers.