{"id":1016,"date":"2010-04-22T12:22:36","date_gmt":"2010-04-22T19:22:36","guid":{"rendered":"tag:google.com,2005:reader\/item\/8b183b35f352e801"},"modified":"2010-05-10T23:41:15","modified_gmt":"2010-05-11T06:41:15","slug":"the-worlds-craziest-trade-www-bullfax-com","status":"publish","type":"post","link":"https:\/\/www.blackswanreport.com\/blog\/2010\/04\/the-worlds-craziest-trade-www-bullfax-com\/","title":{"rendered":"The World&#39;s Craziest Trade | www.bullfax.com"},"content":{"rendered":"<blockquote>\n<p>Shared by  JohnH<\/p>\n<p> Anybody read The Big Short? Would love to understand the details of making the kind of trades NNT talks about. I wish someone would write a &#8216;How To&#8217; with specifics built around NNT&#8217;s Moscow Forum strategy outlined here: <a href=\"http:\/\/www.blackswanreport.com\/media\/NassimTaleb-Moscow-February2010-trades.mp3\">http:\/\/www.blackswanreport.com\/media\/NassimTaleb-Moscow-February2010-trades.mp3<\/a><\/p>\n<\/blockquote>\n<p>I did this exercise after being inspired\/motivated by the story of Cornwall Capital which was bought to my attention by Michael Lewis in his book the <a rel=\"nofollow\" href=\"http:\/\/www.npr.org\/templates\/story\/story.php?storyId=124690424\">Big Short<\/a>:Ledley and Mai were two guys in their early 30s who decided to start their own <abbr title=\"The Hedge funds are non-bank, private companies that invest in a range of financial instruments such as shares, commodities or debt. Hedge funds often accept capital from a limited set of investors - the minimum amount to be invested is usually high compared to other types of investment.&lt;br \/&gt; Hedge funds have varying fees structure - a management fee as well as a portion of the earnings are often collected by the hedge fund. Because they are regular private companies their financial activities are not as strictly regulated as those of commercial banks for example.&lt;br \/&gt; Recently however there have been calls for stricter regulation and more transparency, since many blame hedge funds' predatory practices for the financial market instability.\"><a href=\"http:\/\/www.bullfax.com\/?q=glossary%2Fterm%2F2557\">hedge fund<\/a><\/abbr> with just over $100,000. They quickly made more than $15 million by betting on financial events that are extremely unlikely to occur \u2014 and therefore didn&#8217;t cost much to bet against. &#8220;They thought that Wall Street underestimated the likelihood of really unlikely events,&#8221; Lewis says. &#8220;So they would buy <abbr title=\"Options are a set of financial instrumentst that give the buyer the right to buy a security or any other asset at a given time in the future at a set price.&lt;br \/&gt; Options give both the buyer and the seller protection from future changes in the price of the underlying security. Well known option types are the European , where the option can be exercies i.e. the security bought only on the expiration date set in the option and the American, which give the buyer the right to buy on any date up to the expiration date.\"><a href=\"http:\/\/www.bullfax.com\/?q=glossary%2Fterm%2F2566\">options<\/a><\/abbr> to buy stocks at prices far, far away from where the stocks were currently trading. They did this with currencies, they did it with <abbr title=\"Commodities are the materials and basic products or resources traded on markets. A commodity is a standardized product that does not differ from one producer to the other.&lt;br \/&gt; That means commodities are readily traded on international markets. Many economic agents, such as hedge funds or individuals invest in commodities on the commodity exchanges. In many cases the commodities bought such as gold or oil are not delivered physically, but instead held as a security.\"><a href=\"http:\/\/www.bullfax.com\/?q=glossary%2Fterm%2F2559\">commodities<\/a><\/abbr>. They scoured the world, essentially looking to make bets on extreme things happening.&#8221; This story bought together everything that John Templeton practiced and Nassim Taleb preaches! In fact if you wanted a book that clearly demonstrated the application of Fooled by Randomness and The Black Swan then look no further than The Big Short. While most commentators are of the belief that being right is all that matters few, in fact, ever so few, place any emphasis on <abbr title=\"Financial risk is a key concept in finance and investment. Risk denotes the possibility of an economic activity or asset yielding less than expected or losing its value.&lt;br \/&gt; Risk is further divided into different categories depending on the type of loss and the reason that may occur - capital risk - losing one's investment, currency risk - the risk of a currency devaluation, and hence the devaution of an asset valued in that currency, counterparty risk - risk that an economic agent would not fulfil their responsibilities and others.&lt;br \/&gt; Estimating managing and protectin - or hedging risks is a key element of any investment strategy.\"><a href=\"http:\/\/www.bullfax.com\/?q=glossary%2Fterm%2F2564\">risk<\/a><\/abbr> vs. reward of a particular outcome. Perhaps analysts\/bloggers think in terms of their reputations when it comes to risk vs. reward rather than a financial outcome. Anyway getting back to my idea&#8230;&#8230;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Shared by  JohnH <\/p>\n<p>Anybody read The Big Short? Would love to understand the details of making the kind of trades NNT talks about. I wish someone would write a &#8216;How To&#8217; with specifics built around NNT&#8217;s Moscow Forum strategy outlined here: http:\/\/www.bl&#8230;<\/p>\n","protected":false},"author":14,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[32,5,165],"tags":[],"class_list":["post-1016","post","type-post","status-publish","format-standard","hentry","category-audio","category-feeds","category-investing"],"_links":{"self":[{"href":"https:\/\/www.blackswanreport.com\/blog\/wp-json\/wp\/v2\/posts\/1016","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.blackswanreport.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.blackswanreport.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.blackswanreport.com\/blog\/wp-json\/wp\/v2\/users\/14"}],"replies":[{"embeddable":true,"href":"https:\/\/www.blackswanreport.com\/blog\/wp-json\/wp\/v2\/comments?post=1016"}],"version-history":[{"count":2,"href":"https:\/\/www.blackswanreport.com\/blog\/wp-json\/wp\/v2\/posts\/1016\/revisions"}],"predecessor-version":[{"id":1148,"href":"https:\/\/www.blackswanreport.com\/blog\/wp-json\/wp\/v2\/posts\/1016\/revisions\/1148"}],"wp:attachment":[{"href":"https:\/\/www.blackswanreport.com\/blog\/wp-json\/wp\/v2\/media?parent=1016"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.blackswanreport.com\/blog\/wp-json\/wp\/v2\/categories?post=1016"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.blackswanreport.com\/blog\/wp-json\/wp\/v2\/tags?post=1016"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}