I think this is the part of your post that you need to focus on.
Tavakoli's smear campaign ag. Taleb
- Thread starter nerofan
- Start date
I agree with your assessment, and I think Taleb is correct. Uncertainty requires more of a buffer or margin of safety than most people seem to think, judging by their evident overconfidence in mathematical models and such.
Well, if Taleb's a full professor, pls do explain to me why he has so much dislike for the academia that he's a part of...
In all honesty, I actually think Taleb was a pretty good academic and had done some very worthwhile work, until he started to focus almost exclusively on his proselytizing. I guess the speech circuit and fame pay a lot better. Since he has crossed over to the dark side, I have lost all respect for him. There are other academics who do very interesting work in Taleb's area, but they just don't feel the need to be that loud. IMHO, those are actually the people worth listening to, rather than Taleb.
No, no, the reality is Taleb has exposed the dark side of the academic community that wants to keep sponsors happy and refuses to convey the message to them that it takes just one black swan to wipe out the whole financial system as we know it.
Academics are afraid to publish papers that expose the fragility of the financial system because of fear of losing tenure, job, contracts, allumni sponsors, etc. Taleb does it because he does not care any more.
I tell you a true story. I had a long time friend who started trading futures at some point in time. His capital was 10K. I made the mistake to tell him over drinks that he was risking 10% on each trade and that could cause him to blow up at a certain point. Ten years of friendship went down the drain just like that because of what I said. After 3 months he blew up but he never talked to me again to this date.
That is the point. Mission accomplished.
I sincerely hope most people remain as disbelieving as you, as it helps maintain the viability of the approach.
But...if he is "probably right"...isn't the bigger idiot the one that does it the hard way instead of the "probably right" easy way? Seems that what you are effectively arguing for is intentional inefficiency.
I'm sure the fact that you're employed by this inefficiency has no bearing on your viewpoint...
I am not sure what 'academic community being exposed by Taleb' you're referring to here... Last I heard most of the work done by people in behavioural economics/finance and extreme value statistics, not to mention certain people in mainstream finance, was on the very same subjects Taleb so loves talking about.
Your comment illustrates just how successful Taleb has become in selling his 'iconoclast' persona. He's become loud, obnoxious and, in spite of academic credentials he's happy to advertise, likes to portray himself as some sort of a martyr that has been crucified by mainstream academia for his unorthodox views. In reality, that's so utterly not the case, it's not even funny. There are serious people quietly working on things about which he now likes to shout from the rooftops ('cause it pays, you see), but nobody hears these people who deserve a lot more of our attention than Taleb.
Thx for the true story. Nobody likes to think about the downside. Again, research into these sorts of subjects has been pioneered by Kahneman and Tversky, not by Taleb. That just illustrates my point above, 'cause people rarely mention them, but somehow always mention Taleb.
This of course, is the correct question to ask. Mathematically, anyway.
Here is a typical options trader.
Year 1: Puts in $250k in account. Trades 2:1 and 4:1, make $250k for year. Takes out 250K.
Year 2: Has $250k in account. Trades 2:1 and 4:1, make $250k for year. Takes out 250K.
Year 3: Blows out $250k account. Goes back to Year 1. He is still ahead of game, but he blew out his account. If he lived beyond his means, he may be forced out of game completely.
And so on. People focus on the blowouts, instead of the expectancy. Does bleeding $1M for ten years, then making $20M, better, than making $1M for 20 years and then blowing out a $10M account? The expectancy is the same, but few could take year after year of losses to make it back once.