Category Archives: Investing

Taleb Says Euro Breakup ‘Not a Big Deal’ as U.S. Scariest – Businessweek

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A breakup of the euro “is not a big deal,” Taleb said yesterday at an event in Montreal hosted by the Alternative Investment Management Association. “When they break it up, there will be a lot of fun currencies. This is why I am not afraid of Europe, or investing in Europe. I’m afraid of the United States.”

The budget deficit as a proportion of gross domestic product in the U.S. amounted to 8.2 percent at the end of 2011, government figures show. That’s twice the 4.1 percent ratio for euro-region countries, according to data compiled by Bloomberg.

“Of course Europe has its problems, but it’s in much better shape than the United States,” Taleb said. He voiced similar concerns about U.S. prospects at a conference in Tokyo in September.

via Taleb Says Euro Breakup ‘Not a Big Deal’ as U.S. Scariest – Businessweek.
HatTip to Dave Lull!

Financial black swans driven by ultrafast machine ecology

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Financial black swans driven by ultrafast machine ecology

Neil Johnson, Guannan Zhao, Eric Hunsader, Jing Meng, Amith Ravindar, Spencer Carran, Brian Tivnan
Submitted on 7 Feb 2012
Society’s drive toward ever faster socio-technical systems, means that there is an urgent need to understand the threat from ‘black swan’ extreme events that might emerge. On 6 May 2010, it took just five minutes for a spontaneous mix of human and machine interactions in the global trading cyberspace to generate an unprecedented system-wide Flash Crash. However, little is known about what lies ahead in the crucial sub-second regime where humans become unable to respond or intervene sufficiently quickly. Here we analyze a set of 18,520 ultrafast black swan events that we have uncovered in stock-price movements between 2006 and 2011. We provide empirical evidence for, and an accompanying theory of, an abrupt system-wide transition from a mixed human-machine phase to a new all-machine phase characterized by frequent black swan events with ultrafast durations <650ms for crashes, <950ms for spikes.

via [1202.1448] Financial black swans driven by ultrafast machine ecology.

A Quant’s Apology: Bar Humbug – The Talebian Bar-Bell Portfolio, Part I

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In the end I added  this to the ‘haters’ category. Especially after I read this post. He seems to be writing anonymously. Anyone know who it is?

According to philosopher Taleb we can have heuristics, but not optimization. Optimization leads to airport delays. It also leads to cheaper tickets and in this exciting two part installment I will merely attempt to clarify, and separate, the two separate pieces of advice which have been rather successfully promulgated:

It is wise to bet on unexpected outcomes, because markets underprice them

It is wise to adopt a bar-bell portfolio eschewing a middle ground of only moderately risky investments

My hope is that those of you falling for the long-shot lure might nevertheless hear me out, because you have not considered the possibility that 2 does not follow from 1. You are fools, frankly, but I have little interest in arguing about the first belief per se, just at the moment, because nobody has been able to explain to me why Taleb’s redressing of the longshot lure does not apply to situations where it is obviously wrong (like the racetrack).

It is the implication 1 => 2 I find rather more intriguing because like most pseudo-science it sounds perfectly reasonable, almost compelling. Yet if you were assuming that the world’s foremost thinker on probability and uncertainty has thought about it carefully on your behalf, and you need not, think again. We shall pry the two beliefs apart because the benefits of long-shot betting, real or imagined, do not suggest a bar-bell strategy.

via A Quant’s Apology: Bar Humbug – The Talebian Bar-Bell Portfolio, Part I.
HatTip to Dave Lull!

Janet Tavakoli: Where Were Drama Pundits — Whitney, Taleb and Gasparino — When It Mattered?

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I’m in receipt today of a collection of emails from Janet Tavakoli. You may recall some controversy around figures NNT was quoted to have said in a GQ article. I believe I’ve posted about this elsewhere on the blog. It’s from 2009. As you know, I have no relationship with Nassim Taleb, I’m simply collecting, in one place, information related to him and his ideas, for people who, like myself, find his thinking fascinating. I am a fan, certainly not a devotee. So in the interest of fairness, and perhaps also, to provide a place for Ms. Tavakoli to further make her case, I’m posting these links to various articles and documents she presents.

 

Taleb’s Stranded Swan? pdf TSF Commentary – June 3, 2009 By Janet Tavakoli

Taleb Kills $20 Billion Mythical Swan pdf

And via Janet Tavakoli: Where Were Drama Pundits — Whitney, Taleb and Gasparino — When It Mattered? | The Big Picture.
Taleb asserted the article was about philosophy, and one should ignore the numbers. The Times (among others) didn’t seem to see it that way. The Times’s original reference to GQ’s article focused on the erroneous $20 billion in trading gains months before Taleb made his correction in the face of media pressure. As for Taleb’s eventual explanation that the “$20 billion” referred to a “notional” amount of derivatives that produced between $250 to $500 million in gains, it raises further strategy questions.

 

 

The Markets, Economic Data, and My Black Swan Approach – Scala Volpe Capital

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At this point I think it would be helpful to illuminate what I’ve been doing both in reaction to the economic data and to be proactive to what I think is still to come.As you may have read already on my Portfolio page, I do employ black swan protection protocols rather consistently month to month.What this means is, each month I purchase the following months’ put options on the SPY (the underlying investment symbol for the S&P500 stock index).These put options, which reflect a bearish outlook on the underlying investment, are bought “out of the money,” meaning the anticipated price (or strike price) that I’m purchasing is below the actual price of SPY as it stands today.So for example, SPY closed around 107 today, and my September puts have a strike price of 100.If the SPY were to make a sharp move downward below 100 before September 18 (the day my options expire), I would profit handsomely.If the puts expire out of the money I’ll lose my entire initial investment sum.