Taleb

TheBramble

Legendary member
Messages
8,394
Likes
1,170
As an antidote to endless circularity, infinite stupidity and in the way of providing a backdrop against which at least one trader on these boards will soon savour their own personal experience of what it feels like to you lose your balance on the edge of the Abyss.

Taleb actually trades Black Swans. His entire methodology is predicated on winning big when the feathers fly and during the long periods of relative calm he’s quite happy to sit through endless numbers of small losses. As are his investors.

He’s basically insuring himself FOR a Black Swan event – not against it.

It’s not my trading style. But the Black Swan event is not something to be feared, hidden from or ignored. It needs to be recognised, assessed and your trading methodology needs to factor in strategies for handling it. The simplest being not to be in too big when it occurs of course.

I’ll start with a few rules from Taleb. I particularly like #8.

Trader Risk Management Lore : Major Rules of Thumb
________________________________________
Rule 1 - Do not venture in markets and products you do not understand. You will be a sitting duck.

Rule 2 - The large hit you will take next will not resemble the one you took last. Do not listen to the consensus as to where the risks are (i.e. risks shown by VAR). What will hurt you is what you expect the least.

Rule 3 - Believe half of what you read, none of what you hear. Never study a theory before doing your own prior observation and thinking. Read every piece of theoretical research you can - but stay a trader. An unguarded study of lower quantitative methods will rob you of your insight.

Rule 4 - Beware of the trader who makes a steady income. Those tend to blow up. Traders with very frequent losses might hurt you, but they are not likely to blow you up. Long volatility traders lose money most days of the week.

Rule 5 - The markets will follow the path to hurt the highest number of hedgers. The best hedges are those you are the only one to put on.

Rule 6 - Never let a day go by without studying the changes in the prices of all available trading instruments. You will build an instinctive inference that is more powerful than conventional statistics.

Rule 7 - The greatest inferential mistake: this event never happens in my market. Most of what never happened before in one market has happened in another. The fact that someone never died before does not make him immortal. (Learned name: Hume's problem of induction).

Rule 8 - Never cross a river because it is on average 4 feet deep.

Rule 9 - Read every book by traders to study where they lost money. You will learn nothing relevant from their profits (the markets adjust). You will learn from their losses.
 
I like the core of his thinking, not so keen on his opinion of himself or his massively over-written books.
 
I like rule number 4. When were the markets ever 'steady' year in year out. Never read Taleb before, but i like his thinking in the OP.
 
I am generally not a big fan of Taleb, for the record.
That's refreshingly good to hear.

Do you disgaree with any of the 'rules' I quote from him above or have comments relating to them which would underline why you're not a big fan?
 
Precisely what Jack said... Point is that there's lots of people who say much more meaningful things on the subjects he speaks about, but without all the drama and the self-aggrandizement. Their voices are getting drowned out by Taleb's shrill media persona. It's not to say that I disagree with the points that he makes, but I don't like how he argues them.

Thing is, I used to have a lot of respect for him. He used to be a good academic, but then it didn't work out somehow. Then he became a trader and that didn't work out too well either. He finally realized that what really pays off and requires a lot less effort is to be a sort of a media personality and a philosopher-at-large. That's where I lost all respect for the man.
 
I like the core of his thinking, not so keen on his opinion of himself or his massively over-written books.

LOL. If being an overly self-opinionated, self-important proudly intellectual elitist narcissist was a crime we’d have far fewer posts (and posters) on this site.

He doesn’t do himself any favours on the personality side, but then again, he probably knows that and doesn’t care.

I don’t assign or discount value from anything until I’ve had the chance to use it.
 
Thing is, I used to have a lot of respect for him. He used to be a good academic, but then it didn't work out somehow. Then he became a trader and that didn't work out too well either. He finally realized that what really pays off and requires a lot less effort is to be a sort of a media personality and a philosopher-at-large. That's where I lost all respect for the man.
The couple of times I've seen him on TV he could in no way be accused of being a ‘media personality’. He appears to be completely devoid of any charisma – no spark whatsoever. Which of course is no reflection on the usefulness, or not, of what he says.

But I obviously need to do more research as it was my understanding his funds management company was doing rather well.
 
The couple of times I've seen him on TV he could in no way be accused of being a ‘media personality’. He appears to be completely devoid of any charisma – no spark whatsoever. Which of course is no reflection on the usefulness, or not, of what he says.

But I obviously need to do more research as it was my understanding his funds management company was doing rather well.
Nah, his fund got closed down... There are some funds he's loosely associated with (I guess as a consultant or smth) that have done very well recently, obviously. At least, that's my understanding.
 
Yeah, I happened across Tavakoli doing my research after MH’s comments. She certainly ha s a bee in her bonnet. Possibly justifiably. I was actually thinking of Universa rather than Empirica when I suggested his returns were good, but the waters are sufficiently muddied for me to use greater caution next time I mention his trading related successes.

With that said, I’m not going to throw the baby out with the bath water as I believe he does make some sound points. Not all of ‘em maybe, but enough to make his contributions worthwhile, if only for those with the wherewithal with which to joust.
 
(y) Rule 9 - Read every book by traders to study where they lost money. You will learn nothing relevant from their profits (the markets adjust). You will learn from their losses.
 
Rules 5 and 6 are critical.

One can make a good living with just 5. I call is the law of perversity.
 
(y) Rule 9 - Read every book by traders to study where they lost money. You will learn nothing relevant from their profits (the markets adjust). You will learn from their losses.


Lol. "This period was when the traders brain was working well. Ooops, big malfunction on this day, as you can see in the wild losses."
 
Rule 9 seems a bit strange to me. You can't really separate profits and losses so easily, they're both part of the game, so to learn about how someone profits also teaches you about losses and vice versa. Also, are we to assume, that because someone made large profits with trend trading strategies, that there is nothing to be learned from that, or that the market has adjusted to eliminate it? I don't think so.

Other than that, some interesting rules of thumb, but rule 6 seems a bit wishy washy, though perhaps true.
 
No you don't.

Oh yes I do and it's a big sign on my office which reads -

Normally the best, and safest moves come from price structures that minimise profitable particpation. Also, called the Law of Perversity.

Like I said, one can build a profitable trading business from just that rule/trading law.
 
Top