5 ms·

...Bypass the paywall: https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CCsQqQIwAGoVChMItZrP7pXNxwIVDKSICh2C0w89&url=http%3A%

...Bypass the paywall: https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CCsQqQIwAGoVChMItZrP7pXNxwIVDKSICh2C0w89&url=http%3A%2F%2Fwww.wsj.com%2Farticles%2Fnassim-talebs-black-swan-fund-made-1-billion-this-week-1440793953&ei=6g7hVbX9BozIogSCp7_oAw&usg=AFQjCNGdc5pikq7MsbqirjONbbx5-xGHZg https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&c... It's really frightening to know that the quickest, easiest way to make millions of dollars gaming the stock market is just to bet on global financial disasters, or bad news of companies, or crops failing.

lnlyplnt 11y ago
this is really nothing other than very straight forward "Insurance". In the long run, the optimists almost always win. Keeping money sitting idle and constantly rolling short dated put options is not a particularly sophisticated trading strategy.
- dxbydt 11y ago
  Why should a trading strategy be "particularly sophisticated" ? I'd settle for terribly boring and profitable.
  - tedunangst 11y ago
    It's unlikely that a terribly boring strategy will in fact be profitable. (Comparatively speaking.)
    - jib 11y ago
      I don't think there is any correlation between exciting/boring and profitable. Index funds ar one of the more profitable strategies (as they don't involve paying some guy a ton of money to play lotto for you). They are certainly boring. Taleb argues that people Investing are really bad at estimating the value of catastrophic failure (or blowout success) and invests accordingly. He is playing the other side of Y combinators strategy, very much in agreement with Fred Wilson, Y combinator etc, just the other side of the spectrum.
      - tedunangst 11y ago
        Er, well, sharpe ratio and all that. The existence of a risk free investment that pays better than the risk free rate would be quite the discovery (certainly not boring!).
- nosuchthing 11y ago
  Sure, but the trader from the article is just a single person with millions. How many other traders out there look forward to bubble bursting events like this? Commodity disasters? Oil disasters and shortages? The whole "dumb money" (retail trades, casual investments, passive investment funds) vs "smart money" (day traders, hedge funds, insider traders, HFT) would lead me to believe that it's beneficial to exploit the excessive pumping up and bursting of financial bubbles, as it only siphons up 'dumb money'.
nostrademons 11y ago
Not really. It makes money now because it loses money at all other times, and the reason why it's potentially profitable is because most people couldn't stomach investing in a portfolio that is designed to lose money 99% of the time.
- contravariant 11y ago
  So basically you're just betting at 99:1 odds?
  - jessaustin 11y ago
    When you think you'll win 2% of the time, those are good odds.
    - theoracle101 11y ago
      This is not true at all and a common fallacy. See the gamblers attrition problem (or double knockout options for this who want to see the only closed form solution). Essentially your wealth is path dependent. Though the expected value may be positive, once you are ruined you cannot continue to play (or in this case) invest anymore. In math you could theoretically always bet (or invest) a fractional value of your wealth, but not in the real world. https://en.wikipedia.org/wiki/Gambler%27s_ruin https://en.wikipedia.org/wiki/Gambler%27s_ruin
      - sokoloff 11y ago
        More relevantly (IMO), see: https://en.wikipedia.org/wiki/Kelly_criterion https://en.wikipedia.org/wiki/Kelly_criterion There's a +EV (long run, even with finite starting bankroll) strategy readily available under the stated conditions.
        theoracle101 11y ago
        "The original meaning is that a gambler who raises his bet to a fixed fraction of bankroll when he wins, but does not reduce it when he loses, will eventually go broke, even if he has a positive expected value on each bet." Yep, that is correct, but the kelly criterion requires fractional betting, which at some point in the real world is not possible, especially with options. This is because there is a limited amount of options you can sell/purchase, so the fractional bet will always decrease as your bankroll increases. And there is also a floor where you cannot purchase below if your bankroll falls below (though your investors would have wiped you out by than). That is suboptimal
IkmoIkmo 11y ago
Well consider that the S&P 500 doubled in the last 5 years. Then consider that those are the stock returns, which doesn't mention the dividends which have averaged about 2%, so add another 10% to that. Meanwhile he made a 15-20% return, on a twice in a decade type of event, and isn't making public his annual returns every other time. (take a wild guess why?) In short, not incredibly impressive. Beyond that, consider why he makes money when there is a financial disaster? Because they act as some form if insurance on economic downturns, basically. A ton of it is bad (i.e. when the whole world profits by burning it down, you've got the wrong incentives!), but some of it can be quite healthy. Not seeing anything frightening about that, but it all depends on what measure.
- nosuchthing 11y ago
  2008, 2010, 2011, and the recent events stemming from the Chinese markets seems like more than just twice in a decade. Also, correct me if I'm wrong but day traders / short sellers aren't obliged to keep the stock positions for any length of time. I just find the phenomena interesting in context of financial bubbles, as the largest financial traders are incentivized to exploit instability of markets, and would be eager to create bubbles for the inevitable pop and profits on the plunges.

lnlyplnt 11y ago

this is really nothing other than very straight forward "Insurance". In the long run, the optimists almost always win. Keeping money sitting idle and constantly rolling short dated put options is not a particularly sophisticated trading strategy.

dxbydt 11y ago
Why should a trading strategy be "particularly sophisticated" ? I'd settle for terribly boring and profitable.
- tedunangst 11y ago
  It's unlikely that a terribly boring strategy will in fact be profitable. (Comparatively speaking.)
  - jib 11y ago
    I don't think there is any correlation between exciting/boring and profitable. Index funds ar one of the more profitable strategies (as they don't involve paying some guy a ton of money to play lotto for you). They are certainly boring. Taleb argues that people Investing are really bad at estimating the value of catastrophic failure (or blowout success) and invests accordingly. He is playing the other side of Y combinators strategy, very much in agreement with Fred Wilson, Y combinator etc, just the other side of the spectrum.
    - tedunangst 11y ago
      Er, well, sharpe ratio and all that. The existence of a risk free investment that pays better than the risk free rate would be quite the discovery (certainly not boring!).
nosuchthing 11y ago
Sure, but the trader from the article is just a single person with millions. How many other traders out there look forward to bubble bursting events like this? Commodity disasters? Oil disasters and shortages? The whole "dumb money" (retail trades, casual investments, passive investment funds) vs "smart money" (day traders, hedge funds, insider traders, HFT) would lead me to believe that it's beneficial to exploit the excessive pumping up and bursting of financial bubbles, as it only siphons up 'dumb money'.

nostrademons 11y ago

Not really. It makes money now because it loses money at all other times, and the reason why it's potentially profitable is because most people couldn't stomach investing in a portfolio that is designed to lose money 99% of the time.

contravariant 11y ago
So basically you're just betting at 99:1 odds?
- jessaustin 11y ago
  When you think you'll win 2% of the time, those are good odds.
  - theoracle101 11y ago
    This is not true at all and a common fallacy. See the gamblers attrition problem (or double knockout options for this who want to see the only closed form solution). Essentially your wealth is path dependent. Though the expected value may be positive, once you are ruined you cannot continue to play (or in this case) invest anymore. In math you could theoretically always bet (or invest) a fractional value of your wealth, but not in the real world. https://en.wikipedia.org/wiki/Gambler%27s_ruin https://en.wikipedia.org/wiki/Gambler%27s_ruin
    - sokoloff 11y ago
      More relevantly (IMO), see: https://en.wikipedia.org/wiki/Kelly_criterion https://en.wikipedia.org/wiki/Kelly_criterion There's a +EV (long run, even with finite starting bankroll) strategy readily available under the stated conditions.
      - theoracle101 11y ago
        "The original meaning is that a gambler who raises his bet to a fixed fraction of bankroll when he wins, but does not reduce it when he loses, will eventually go broke, even if he has a positive expected value on each bet." Yep, that is correct, but the kelly criterion requires fractional betting, which at some point in the real world is not possible, especially with options. This is because there is a limited amount of options you can sell/purchase, so the fractional bet will always decrease as your bankroll increases. And there is also a floor where you cannot purchase below if your bankroll falls below (though your investors would have wiped you out by than). That is suboptimal

IkmoIkmo 11y ago

Well consider that the S&P 500 doubled in the last 5 years. Then consider that those are the stock returns, which doesn't mention the dividends which have averaged about 2%, so add another 10% to that. Meanwhile he made a 15-20% return, on a twice in a decade type of event, and isn't making public his annual returns every other time. (take a wild guess why?) In short, not incredibly impressive. Beyond that, consider why he makes money when there is a financial disaster? Because they act as some form if insurance on economic downturns, basically. A ton of it is bad (i.e. when the whole world profits by burning it down, you've got the wrong incentives!), but some of it can be quite healthy. Not seeing anything frightening about that, but it all depends on what measure.

nosuchthing 11y ago
2008, 2010, 2011, and the recent events stemming from the Chinese markets seems like more than just twice in a decade. Also, correct me if I'm wrong but day traders / short sellers aren't obliged to keep the stock positions for any length of time. I just find the phenomena interesting in context of financial bubbles, as the largest financial traders are incentivized to exploit instability of markets, and would be eager to create bubbles for the inevitable pop and profits on the plunges.