Nassim Taleb / Universa Investments

Nassim Taleb / Universa Investments

Postby la papillion » Fri Jan 30, 2009 11:43 pm

MM, read nassim taleb's black swan? Sounds like those typical advisor described in the book, who are worried about the normal kind of risk. Yet, it's always those unpredictable, unforeseeable, highly significant yet unlikely events that wipe out people.
An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return - Benjamin Graham
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Re: Retirement & Financial Planning

Postby kennynah » Sat Jan 31, 2009 4:07 am

like a coin, the black swan events, can be seen from the head or tail angle.. ie, there is a flip side to this...

so far, most people will view black swan events as disastrous to any investment....but i remember that for one to lose, some one will have to win in the stock market...and i think in the macro view, that is correct...

and hence, we should endeavour to turn those black swan events in our favour....

the question is how?

any suggestions ? 8-)
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Re: Retirement & Financial Planning

Postby iam802 » Sat Jan 31, 2009 4:47 am

when the black swan appears, just follow it....:)

but, most pple prefer white swans.... it is about having the balls to do so (to follow black swans)
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Re: Retirement & Financial Planning

Postby kennynah » Sat Jan 31, 2009 4:58 am

i was thinking in the line of using LEAPS to capture black swan events...cheaper and longer time frame for such one off events to happen...the price for such positions are usually affordable...but not many of such LEAP positions should be taken lest the cost should mount...

any other possibilities to take advantage of black swans ??
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Re: Retirement & Financial Planning

Postby Poles » Sat Jan 31, 2009 9:41 am

rare delicacy......catch it, roast it & eat it......
i think it is about time.
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Re: Retirement & Financial Planning

Postby b0rderc0llie » Sat Jan 31, 2009 10:16 am

kennynah wrote:i was thinking in the line of using LEAPS to capture black swan events...cheaper and longer time frame for such one off events to happen...the price for such positions are usually affordable...but not many of such LEAP positions should be taken lest the cost should mount...

any other possibilities to take advantage of black swans ??


From what I can understand from his book, Taleb buys far out of the money options. These options are priced theoretically at very low prices, because the mathematical odds of a black swan occuring is like striking the lottery. However, Taleb thinks that these options are mispriced. The odds of such an event occuring is not really as small as what the market perceived it to be. He thinks that financial models does not take into account of black swan events. So, he keeps buying these options. Most of the time, these options will expire worthless, and he will lose small amounts of money. He will keep losing small amounts of money, until one day, something extraordinary occurs, and he will win really big.
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Re: Retirement & Financial Planning

Postby kennynah » Sat Jan 31, 2009 10:28 am

thanks for the confirmation that Taleb does buy far OTM options to catch these black swans, thereafter, roast and feast on them (in the words of poland)....
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Re: Retirement & Financial Planning

Postby b0rderc0llie » Sat Jan 31, 2009 11:01 am

Taleb also says that it is a pyschologically demanding strategy. It does not feel good to keep losing money everyday, even though one day a big payout might occur.

On the other hand, many people get rich by playing russian roulette, and then one day they explode. They collect money everyday, and they become very rich. It feels good to keep collecting money everyday, with a very remote chance that everything will be lost. However, when a black swan event occur, it is enough to wipe them out. It is like a very rich guy giving u a gun with one bullet in its 100 ammo compartment. Everytime u aim yourself in the head and press the trigger, the rich guy gives you $1mil. There is only a 1% chance of triggering the bullet. The more you press the trigger, the richer you become, until one day you lose everything.
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Re: Retirement & Financial Planning

Postby winston » Sat Jan 31, 2009 12:42 pm

I agree with 802 that only when a Black Swan appears, then follow it.

In the meantime, it maybe a waste of money buying OTM options and then letting it go worthless, hoping for a Black Swan to appear.

When was the last crisis that qualify to be a Black Swan ? SARS ? Asian Financial Crisis ? 911 ? Imagine betting every month for 5 years before winning big ...

I now prefer a Long / Short Strategy. Go long on some stuff and at the same time, short some stuff as well.
It's all about "how much you made when you were right" & "how little you lost when you were wrong"
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Re: Retirement & Financial Planning

Postby kennynah » Sat Jan 31, 2009 12:45 pm

i can totally envisage your example of a 1 bullet loaded gun of 100 chambers...this is equal to 99% chance of success for our trades. but if we are not careful, that 1%, if improperly managed; ie allowing that 1% to majorly screw the P/L to the point of ruin, then by mathematical probability, that 1% will eventually catch up..and blow away all the months and years of gains.

over time, any options trader will come to appreciate various kinds of spreads as being a reasonable strategies for long term success. for one, they mitigate risks by their structures.

everyone, please jump in here to correct me.....in this regard, naked short positions are the only positions that will give black swan losses, right?
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