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That guy who called the big one? Don’t listen to him.

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Re: That guy who called the big one? Don’t listen to him.

#41
post #14

Earlier quoted context omitted.

he's wrong almost all the time, consistently producing grinding, negative returns. He's only been right a couple times, but when he's right he's really right, making enough money that he doesn't need to make money anymore AFAIK his hedge fund haven't been right "big" even once so far and clients are only withdrawing money with a loss after few years...

20 seconds of search engine gets me: http://en.wikipedia.org/wiki/Nassim_Taleb#Finance_career Perhaps you should invest the extra 19 seconds between typing "AFAIK" and actually, you know, Knowing. ==== "founder of Empirica Capital, after which Taleb retired from trading and became a full-time author and scholar in 2004.[33] Taleb is currently Principal/Senior Scientific Adviser at Universa Investments in Santa Monica…

> Taleb reportedly made a multi-million dollar fortune during the financial crisis that began in 2007

"Reportedly". Also, "multi-million dollar fortune" is really vague.

Sorry to spoil a good story, but the entire Taleb thesis is just a very entertaining way to say : "Shit happens". There is absolutely nothing new that he has to add, other than the entertainment and sheer drama. If there was, he would be able to publish it as a paper in a journal, not merely as a popular paperback. As an analogy, Taleb's position is akin to a religious zealot shouting, "Science dosen't know everything". Science's response is : "Sure, we know that. Why don't you help push the border by proposing and publishing a better model?". No, he is content to just shout from the rooftops and make a living out of it. Even his recent attempt to publish an academic paper in 2010 is full of negativity: it's just a way to say, "You're wrong, you're wrong, you're wrong. Here are citations to show you're wrong."

Also, note that Taleb is merely an adviser to Universa. Any credit for profitability at Universa goes to their founder, traders and portfolio managers. When he was the trader (at Empirica), they had to fold the fund. That's when he wrote the books.

What fans of Taleb probably don't realize is that the enemy is not the models or the quants who published the models, who clearly stated their simplifying assumptions in order to make approximate models, (because Newton's laws are a good-enough intermediate model compared to nothing even though they may be wrong at extreme points, and that's where relativity comes in,) but overleveraging (trading with money that you don't have), and good old greed (using a model that states clearly on the label that it is only an approximation, 90% correct, as if it were 100% correct).

Taleb's recent arguments with Scholes (who was awarded a Nobel Prize for the Black-Scholes model) is like a dolt shouting a Newton, saying, "But you didn't consider relativity! You must be jailed for that!". So what, at least he DID something concrete!

Re: That guy who called the big one? Don’t listen to him.

#42
post #16
post #7

I had a professor that told me it's actually a good strategy to make wild predictions far in the future. If you're right, you look like an oracle. If you're wrong, nobody remembers to go back and dig up "he predicted this on this date", primarily because they're already focused on the next predictions. Most of the time it's a win-win; the farther out in the future the better.

Seth Godin makes a similar point to be unafraid of "claim chowder" - what happens when you make a prediction about the future and you end up being totally and tragically wrong. No one remembers! http://sethgodin.typepad.com/seths_blog/2010/11/unwarranted-...

Unless John Gruber doesn't like you.

Re: That guy who called the big one? Don’t listen to him.

#43
post #41

Earlier quoted context omitted.

20 seconds of search engine gets me: http://en.wikipedia.org/wiki/Nassim_Taleb#Finance_career Perhaps you should invest the extra 19 seconds between typing "AFAIK" and actually, you know, Knowing. ==== "founder of Empirica Capital, after which Taleb retired from trading and became a full-time author and scholar in 2004.[33] Taleb is currently Principal/Senior Scientific Adviser at Universa Investments in Santa Monica…

> Taleb reportedly made a multi-million dollar fortune during the financial crisis that began in 2007 "Reportedly". Also, "multi-million dollar fortune" is really vague. Sorry to spoil a good story, but the entire Taleb thesis is just a very entertaining way to say : "Shit happens". There is absolutely nothing new that he has to add, other than the entertainment and sheer drama. If there was, he would be able to publ…

Are you not allowed to call bullshit on something unless you can do better? I believe the contrary; I think that reading around and saying "You're wrong, you're wrong, you're wrong. Here are citations to show you're wrong" is actually a very valuable contribution to science and society -- what are the point of such models if they don't work?

The difference between Newton and the securities traders that Taleb dislikes is that Newton actually managed to predict things with certainty. A large part of the Black Swan is Taleb pointing out that barely any retrospective review is done on predictive models.

Re: That guy who called the big one? Don’t listen to him.

#44
post #37
post #22

"when people study success stories exclusively — as many avid devourers of business self-help books do — they come away with a vastly oversimplified idea of what it takes to succeed. This is because success is what economists refer to as a “noisy signal.” It’s chancy, fickle, and composed of so many moving parts that any one is basically meaningless in the context of the real world. By studying what successful ventur…

So then I wonder if that makes a case for Jessica Livingston writing a book called "Founders that Failed", rather than "Founders at Work 2"?

I would love a book like that, if there was sufficient analysis of the failures, and the interview subjects were as interesting as the crowd in "Founders at Work".

Re: That guy who called the big one? Don’t listen to him.

#45

To me it seems that hardest part about predictions is the timing. It's not too hard to understand the macro economic trends and to see which way the wind is blowing, but it's very hard to know when it will happen and how quickly it will happen. That's why day trading is gambling. The long term buy and hold, and the averaging down strategies will make you money, as long as you understand mid to long term direction of…

Actually if there's any one lesson to be learned from the last dozen years of the stock market's swings, it is that "buy and hold" is dead as a useful investment strategy. As to gambling vs. trading, there's a whole industry of people who train traders in eliminating the gambling psychology that can destroy equity so quickly. A short time frame only exacerbates the psychological weakness. Oddly enough successful day…

Look back over the last ninety years - "Buy and Hold" hasn't been that great a strategy either.

http://www.nytimes.com/interactive/2011/01/02/business/20110...

Re: That guy who called the big one? Don’t listen to him.

#46
post #7

I had a professor that told me it's actually a good strategy to make wild predictions far in the future. If you're right, you look like an oracle. If you're wrong, nobody remembers to go back and dig up "he predicted this on this date", primarily because they're already focused on the next predictions. Most of the time it's a win-win; the farther out in the future the better.

But an end to the housing bubble was hardly a wild prediction, just common sense.

Either some new law that would let bubbles go on forever had just appeared or the bubble would end in a bit. You just didn't know exactly which bit.

Indeed, in any bubble, some percentage are fooled by the argument du jour that "this time it's different" and another percentage are simply trying to find the bigger fool. Sure, a lot of people know the bubble will pop but without knowing exactly when, they don't really an incentive to do anything.

Re: That guy who called the big one? Don’t listen to him.

#47
post #22

"when people study success stories exclusively — as many avid devourers of business self-help books do — they come away with a vastly oversimplified idea of what it takes to succeed. This is because success is what economists refer to as a “noisy signal.” It’s chancy, fickle, and composed of so many moving parts that any one is basically meaningless in the context of the real world. By studying what successful ventur…

I am probably biased but I think he makes the same mistake he is arguing against. Base rate neglect is due to an inability to calculate a conditional probability properly - assuming P(A given B) = P(B given A). In a similar type of fallacy, looking at the joint probability of 95% or whatever of businesses failing and saying you only have 5% chance to succeed is nonsense.

First this frequentist approach is inapplicable to the real world (Taleb's thesis actually) and secondly you have to look at it as your degree of belief of success given: team, communication ability, industry, environment, economic state, competition, potential usefulness, market saturation, skill, climate, education, timing, confidence, willingness and dozens of other variables. This will , can only be a rough estimate. So don't just look at arbitrary success stories but don't just look at arbitrary failures either. Pick a set of criteria and look at all those most similar to you, whether they be analogues or dopplegangers. Find the success rate in this smaller space.

Your chance of failure might be much lower but it could also be much higher than the base rate. Basically, do your homework. Consider your situation, risk tolerance, odds, utility and act accordingly.

Re: That guy who called the big one? Don’t listen to him.

#48

We want to believe success is more probable than it is, that it’s the result of a process we can wrap our heads around. That’s why we’re drawn to prophets, especially the ones who get one big thing right. We want to believe that someone, somewhere can foresee surprising and disruptive change. It means that there is a method to the madness of not just business, but human existence, and that it’s perceptible if you loo…

>It’s why we take lucky rabbits’ feet into casinos instead of putting our money in a CD, why we quit steady jobs to start risky small businesses.

Again, I am probably biased but I think this indirect comparison is nonsense. While one action is unequivocally irrational the other could be rational if you take into account situation, tolerance to risk and expected value - expected utility of the action.

Re: That guy who called the big one? Don’t listen to him.

#49
post #40
post #25

In October 2008, he predicted that hundreds of hedge funds were on the verge of failure and that the government would have to close the markets for a week or two in the coming days to cope with the shock. Most hedge funds would have been bankrupt if not for the bailouts, so he was technically correct.

So you're saying Nouriel's prophetic vision includes the entire economic world except the government? Wow, what a flaw. Almost as bad as kryptonite.

It actually makes sense. To predict the economy without government you need to predict trends and the behavior of many people. To predict the government moves you need to predict the whims and arbitrary actions of individuals, and do that according to their perceived political gains.

Re: That guy who called the big one? Don’t listen to him.

#50
post #25

In October 2008, he predicted that hundreds of hedge funds were on the verge of failure and that the government would have to close the markets for a week or two in the coming days to cope with the shock. Most hedge funds would have been bankrupt if not for the bailouts, so he was technically correct.

Do you have some data to back that up? (I'm honestly curious, didn't know this.)
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