We are fans of randomness and its study. Taleb in the market? Not really.
From Delancey Place, November 20:
Today's selection--from Fooled by Randomness by Nassim Nicholas Taleb.
Randomness comes to Wall Street:
“Reality is far more vicious than Russian roulette. First, it delivers the fatal bullet rather infrequently, like a revolver that would have hundreds, even thousands, of chambers instead of six. After a few dozen tries, one forgets about the existence of a bullet, under a numbing false sense of security. The point is dubbed in this book the black swan problem, which we cover in Chapter 7, as it is linked to the problem of induction, a problem that has kept a few thinkers awake at night. It is also related to a problem called denigration of history, as gamblers, investors, and decision-makers feel that the sorts of things that happen to others would not necessarily happen to them.
“Second, unlike a well-defined, precise game like Russian roulette, where the risks are visible to anyone capable of multiplying and dividing by six, one does not observe the barrel of reality. Very rarely is the generator visible to the naked eye. One is thus capable of unwittingly playing Russian roulette—and calling it by some alternative ‘low risk’ name. We see the wealth being generated, never the processor, a matter that makes people lose sight of their risks, and never consider the losers. The game seems terribly easy and we play along carelessly. Even scientists with all their sophistication in calculating probabilities cannot deliver any meaningful answer about the odds, since knowledge of these depends on our witnessing the barrel of reality—of which we generally know nothing.
“Finally, there is an ingratitude factor in warning people about something abstract (by definition anything that did not happen is abstract). Say you engage in a business of protecting investors from rare events by constructing packages that shield them from their sting (something I have done on occasion). Say that nothing happens during the period. Some investors will complain about your spending their money; some will even try to make you feel sorry: ‘You wasted my money on insurance last year; the factory did not burn, it was a stupid expense. You should only insure for events that happen.’ One investor came to see me fully expecting me to be apologetic (it did not work). But the world is not that homogeneous: There are some (though very few) who will call you to express their gratitude and thank you for having protected them from the events that did not take place.
“The degree of resistance to randomness in one's life is an abstract idea, part of its logic counterintuitive, and, to confuse matters, its realizations nonobservable. But I have been increasingly devoted to it—for a collection of personal reasons I will leave for later. Clearly my way of judging matters is probabilistic in nature; it relies on the notion of what could have probably happened, and requires a certain mental attitude with respect to one's observations. I do not recommend engaging an accountant in a discussion about such probabilistic considerations. For an accountant a number is a number. If she or he were interested in probability she or he would have gotten involved in more introspective professions—and would be inclined to make a costly mistake on your tax return....
....MUCH MORE
On randomness:
- Randomness: "A Drunkard’s Walk in Manhattan"
- "...Believe the seemingly impossible — that you can win at a number guessing game with absolutely no information".
- Uncertainty and RandomnessThe Case For Using Random Benchmarks In Portfolio Analysis
- "Detox democracy through representation by random selection"
- The Joy of Randomness: Central Bank Strategy, Management Technique and Stock Selection
- Profiting From Random Strategies
- Can Information Rise From Randomness?
- Should You Just Give Up And Trade Stocks Randomly?
- Joys of Noise: Technologies that Rely on Randomness
- Think a coin toss has a 50-50 chance? Think again.
- Attention Managers, You Can Improve Corporate Efficiency by Randomly Promoting Employees
That last piece of research was awarded Harvard's own Ig Nobel prize in 2010.
Ya see, ya got your complex systems and ya got your chaotic systems and then ya got your complex-chaotic systems like weather or the economy or the stock market and when you endeavor at those levels of sophistication you realize:...
There may be issues.
And on Taleb:
August 2015
Nassim "Black Swan" Taleb-Advised Fund Made a Billion From the Volatility On Monday
We are not impressed.
If it takes you six years of buying out-of-the-money puts for your 20% day to arrive, your annualized gain suffers.
More below....
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....We've been tracking Mr. Taleb for quite a while and the general summation is an ad I was going to write for him:
"Here at The PseudoProfound Group, we believe..."See for example this 2013 re-post of a snip from 2009's "Taleb Makes Hyperinflation Bet and Why You Might Want to Be Skeptical":
Climateer Line of the Day: The Humble Mr. Taleb Edition
I was reminded of something Nassim Taleb said a few years ago:In 2010 it was "Oh Berkshire Hathaway Fans: "'Black Swan' Author Nassim Taleb: Warren Buffett May Just Be Lucky" (BRK.B; BRK.A)"
CNNMoney: Did your personal portfolio benefit or suffer from the subprime crisis?And now I can't stop laughing. ...
Taleb: I prefer not to answer that, as I am trying to avoid talking about my nonintellectual activities.
How to keep your name in the headlines by making a sophomore statistical point (sample size, error bars, confidence levels)....That Hyperinflation post has some amusing analysis of Taleb's prior fund, Empirica Kurtosis LLC. Here' one bit:
...So after the fund starting grinding out losses, Nassim started calling his fund a 'hedge', not a fund, later, a 'laboratory'. Now he says about the fund:"Our aim was not to make money,'' Taleb says....See also "More on Nassim "Black Swan" Taleb as a Money Manager"
...But he makes sure any article that mentions his fund notes he made 60% in 2000. The only record of his total fund was a WSJ article on him in 2007, which notes he lost money in 2001 and 2002, made single digits in 2003 and 2004. That averages out to around 12%, and as the risk free rate was about 4% over that period, and the volatility was probably around 17% on a monthly basis, thats a Sharpe of 0.47. Not so good. And that's with his unaudited returns, so it's probably biased high (people have a tendency to round unaudited results upward significantly)...
2013's "Brian Eno Answers Nassim Taleb" begins with:
Mr. Eno is an autodidactic polymath.
Mr. Taleb is a comedian:
Climateer Line of the Day: The Modesty of Nassim Taleb Edition
And many more.
