First read about the Black Swan theory of human development on Wikipedia. Then you may want to read the short summary here. And then, if you have time and patience to listen to an epistemologist / essayist, listen to the inverview with N. Taleb.
Applied to investing, the main idea is that we underestimate how fat the tails of "extreme" events are. Instead of avoiding losses from extreme events, diversifying and hoping, you should position yourself to profit from them, because they are not rare, they are just unpredictable. You should espouse risk, bet on new ideas, start new companies, be a venture capitalist. Be long out-of-the-money options, real and financial.
Thanks for not offering us any kool-aid, although I am thirsty. Dr. D. as one of my favorite thinkers says, "I am a political atheist." "I do not see the world as I want it to be but as it is." Really understanding Taleb will help us see the world as it is.
ReplyDeleteHere is a link to a blog that links to a video
ReplyDeletehttp://www.ritholtz.com/blog/2009/02/predicting-crisis-dr-doom-the-black-swan/
Its about Taleb and a counterpart Nouriel Roubini. Read the blog paragraphs by author Ritholtz stating, “In this clip, Nouriel Roubini and Nassim Taleb are still being treated as a circus sideshow by CNBC… They’re predicting the end of finance, and offering the only clear path out of this mess that I’ve seen offered (with the knowledge to back it up), and CNBC keeps asking them for stock tips. It’s ludicrous. Wall Street media — CNBC at least — doesn’t realize how bad this is yet. They’re stuck in a bubble where they think everything will go back to normal in a few months….”
Roubini seems to want to make a name for himself with dire predictions. Consulting dollars?...
ReplyDeleteSome of the points he makes on how large the world trade and debt imbalances are valid. But I'll go on record to predict that the world will not end anytime soon...so study hard, work hard, play hard, love and live your life...