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Category Archives: Investing

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 […]

Permanently “Risk-Off”

Taleb writes: “Stifling natural fluctuations masks real problems, causing the explosions to be both delayed and more intense when they do take place. As with the flammable material accumulating on the forest floor in the absence of forest fires, problems hide in the absence of stressors, and the resulting cumulative harm can take on tragic […]

No, Small Probabilities are Not ‘Attractive to Sell’: A Comment by Nassim Taleb :: SSRN

No, Small Probabilities are Not ‘Attractive to Sell’: A CommentNassim Nicholas TalebNYU-PolyJanuary 5, 2013Financial Analysts Journal, Forthcoming Abstract: Owing to the convexity of the payoff of out-of-the money options, an extremely small probability of a large deviation unseen in past data justifies rationally buying them, or at least justifies excessive caution in not being exposed […]

What I say is HERE and HERE ONLY

This is the fact that should make sympathetic readers of Taleb pause: we have had at least two major global crises in recent years – the financial crisis in 2007-08 and the European banking crisis in 2011 – and yet the payoff to option buyers from those events has not even covered the carrying costs […]

The rocky road to big gains that might not happen –

Famed investment sage Warren Buffett, like many before him, decided to sell options. Veteran trader and renowned intellectual Nassim Taleb, on the other hand, decided to buy options. While Mr Buffett would have gone for the first choice in the game proposed at the beginning, Mr Taleb would have gone for the second choice. So, […]