Monthly Archives: May 2013

When Smart Investors Do Stupid Things

The article closes by asking, “how long can they produce those kinds of returns before suffering some spectacular crash?”

We now know the answer: about a year.

LTCM was a glaring reminder that past volatility is a terrible measure of future risk. Yet we still obsess over volatility, convinced that it tells us how safe an investment is.

Nassim Taleb describes using volatility as a measure of risk as the “turkey problem.” He writes in his book Antifragile:

A turkey is fed for a thousand days by a butcher; every day confirms to its staff of analysts that butchers love turkeys “with increased statistical confidence.” The butcher will keep feeding the turkey until a few days before Thanksgiving. Then comes that day when it is really not a very good idea to be a turkey.

So if volatility isn’t a good measure of risk, what is?

via When Smart Investors Do Stupid Things.


THE PERFECT TEMPERATURE IS CONVEX. Recall that pulmonary ventilators (for patients with weak or sick lungs) are more effective if one varies the intensity (x+dx, x-dx instead of the constant previously assumed optimal x). Also recall that convexity (Jensen’s inequality, antifragility) is a general rule in natural settings rather than the exception.

It just hit me that the most pleasant temperature could not be a constant; it has to fluctuate accordingly to some degree of volatility. Temperature should not be fixed as in air-conditioned environments. I am now sitting in a room with a gentle intermittent breeze and the wind-adjusted temperature is dancing around the perfect spot. It is ideal for sleeping… Our bodies like to be confronted to variations, as if they were teased by nature.

via THE PERFECT TEMPERATURE IS CONVEX…. – Nassim Nicholas Taleb | Facebook.