
Taleb - the new sage of Wall Street | - nickb
http://www.guardian.co.uk/books/2008/sep/28/businessandfinance.philosophy
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mynameishere
_The banking system, betting against black swans..._

I'm so sick of this guy and his gimmicks. Here--I'll sell you some zebra
stampede insurance. Now you're covered against _that_ black swan. It could
happen, yes? But by definition, a random event can't be predicted, so why
bother planning against it?

But this wasn't a "black swan". There was nothing strange about what happened,
and many, many people predicted it and explained their predictions. Yet, the
media is giving credit to some charlatan who provides nothing but magical
thinking:

 _where he believes no one can predict black swan events, he's eager to cite
instances where he alone has done so._

~~~
timr
I generally agree with you (I find Taleb's writing to be incoherent and his
arguments overwrought), but I think his point is still relevant: if you make
your wealth through financial tricks that work moderately well 99.99% of the
time, but fail catastrophically .01% of the time, you've got to plan on
failing in a catastrophic way. For whatever reason, most Wall St. guys don't
seem to think that way.

Point being, you don't need to _predict_ the improbable event; you just need
to be aware that it's eventually going to happen, and plan appropriately.

~~~
mynameishere
_plan appropriately_

Sure. Did you know that on the big stock market drop a couple weeks back, only
_one_ company in the s&p 500 went up?

[http://www.usnews.com/blogs/new-money/2008/9/30/campbells-
so...](http://www.usnews.com/blogs/new-money/2008/9/30/campbells-soup-lone-
survivor-of-the-sp-sell-off.html)

 _if you have no confidence in your banking system and no confidence in the
financial markets, the only thing you can have confidence in is the ability to
build a bunker_

That is the only way to provide against the vast bulk of "black swans". A
bunker with plenty of canned goods. And that fact got priced into the market
instantly. Even if it amounted to a sort of joke...

~~~
timr
You're being extremely cynical.

The point is not that you (probably) lost money in last week's market; the
point is that you didn't go bust. The guys that Taleb is talking about put it
all on the line, discounted the possibility that this sort of thing could
happen, and now they're dead.

Like I said: I don't like Taleb's writing, but I don't think the message is
particularly bad.

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biohacker42
I am not nearly a good enough statistician to give a good critique of Talib's
theories.

But I do recall a great article that was very informative and for the life of
me, I can not find it.

Does anyone here know what I'm talking about, or did I just dream of an
excellent Taleb counter point?

~~~
mkn
You're not dreaming. I remember that it was an article about how to allocate
your portfolio according to the risk inherent in the various investment
options. It appeared here on hacker news, and yes, it put the lie to a lot of
Taleb's claims about risk and investing.

 _I am not nearly a good enough statistician to give a good critique of
Talib's theories._

Neither is he. (rimshot)

~~~
jon_dahl
_You're not dreaming. I remember that it was an article about how to allocate
your portfolio according to the risk inherent in the various investment
options. It appeared here on hacker news, and yes, it put the lie to a lot of
Taleb's claims about risk and investing._

I'd love to see this article. Anyone know what it is?

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fallentimes
Be sure to read this as well:

The Fourth Quadrant: A Map Of The Limits Of Statistics (9/15/08):

<http://edge.org/3rd_culture/taleb08/taleb08_index.html>

------
alecco
Taleb is to Roubini as Klein is to Chomsky.

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zby
This black swan stuff is like that Web 2.0 - everyone can have his own
definition.

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quasimojo
i'll explain this market for you all so you can understand it

DEBT UNWINDING

the world has flooded itself in debt, far more than any economic expansion or
confidence can handle. there is always an inflection point where confidence in
debt unravels. this is why even the govt can't stop the debt unwinding.

until a significant de-leveraging takes hold, all markets will stay in the
toilet

for de-leveraging to take place, assets need to be repriced

we are now in a period i will call

THE GREAT REPRICING

all assets will be repriced. you see stocks reprice quickly now because they
are the most liquid asset. bonds are next. houses will continue to fall. in
the end, houses will fall by a minimum of 50%. i say this as a homeOWNER, i
have already made peace with the fact that my home (in desirable bay area)
will fall by 50%. in some places they have already fallen 50%

this is the exact experience of the japanese in the 90s. even 0% interest
rates could not induce more consumption and debt. it took them TEN YEARS to
work it off

~~~
mixmax
I agree with you - there is really no need to be talking about black swan
events, it's simple math. Over the last few years people (especially in the
US) have been borrowing like crazy based on the value of their homes. These
were inflated because of banks being willing to loan to people that really
couldn't afford it, thus driving up the price. A simple but vicious circle
that ends the day someone yells "the emperor has no clothes on". And that time
is now.

If you look through all the bank-yadayada and think for yourself it's both
very simple and inevitable. And the only thing that will fix it is bringing
prices and spending back to their natural level, which is well below what it
is today.

~~~
calambrac
I think you misunderstand what a "black swan" event is. It isn't necessarily
an amazingly rare or complicated thing; actually, kind of the opposite. It's
an event that is thought to be rare based only on the flawed reasoning that it
hasn't been seen yet - the danger of a black swan comes from people betting so
heavily on that perceived rarity.

~~~
mixmax
No, this scenario has been seen often before and should be well understood by
anyone who knows their history. Or have any common sense.

~~~
nir
Taleb's book deals (among other subjects) with the reasons why, in the real
world, nearly all of us - regardless of common sense and knowledge of history
- continue to be surprised with such events.

