3 ms·

For the people commenting that this wouldn't work over the long run (or the past ~10 years of the bull market), the article says this: > Spitznagel included a

For the people commenting that this wouldn't work over the long run (or the past ~10 years of the bull market), the article says this: > Spitznagel included a chart in his letter showing that a portfolio invested 96.7% in the S&P 500 and 3.3% in Universa’s fund would have been unscathed in March, a month in which the U.S. equity benchmark fell 12.4%. The same portfolio would have produced a compounded return of 11.5% a year since March of 2008 versus 7.9% for the index. So, yes this shouldn't be 100% of your portfolio (same with any fund), but a similar strategy might be successful in a small % of your portfolio as a hedge.

hooloovoo_zoo 6y ago
That's interesting but those endpoints seem cherry-picked given the strategy.
- gwern 6y ago
  Also cherrypicking the fund, it seems. I noted a few days ago a broader view: https://www.ft.com/content/602c45e1-219c-49b2-ab17-9b47791fd038 https://www.ft.com/content/602c45e1-219c-49b2-ab17-9b47791fd... > Such funds on average lost money every year from 2012 to 2019 inclusive, according to CBOE Eurekahedge’s index of tail risk hedge funds. Despite having three crises to profit from since the start of 2008 — the global financial crisis, the eurozone debt crisis and the coronavirus crisis — they are still down by an average of 24 per cent over that period.
  - moistly 6y ago
    Yes. One-quarter of 3.3% of your portfolio would lose value during that period. That is the cost of the insurance that paid off when 96.7% of your portfolio would have lost over 12% of its value. The hedge is not your primary investment. It is an insurance policy. Crashes happen several times over an investor’s lifetime.
    - gwern 6y ago
      > The hedge is not your primary investment. It is an insurance policy. Crashes happen several times over an investor’s lifetime. The more frequently they happen, the less valuable such insurance is, especially one that has such ruinously negative returns. (I'm not clear if that's -25% compared to a S&P benchmark or an absolute -25% in a period where the S&P is up like 200%+, but neither way is flattering). Note, of course, that Taleb makes all of his money from books, and that the funds he actually ran all seem to have closed ignominiously and gone down the memory-hole - despite 'black swans' like 9/11...

hooloovoo_zoo 6y ago

That's interesting but those endpoints seem cherry-picked given the strategy.

gwern 6y ago
Also cherrypicking the fund, it seems. I noted a few days ago a broader view: https://www.ft.com/content/602c45e1-219c-49b2-ab17-9b47791fd038 https://www.ft.com/content/602c45e1-219c-49b2-ab17-9b47791fd... > Such funds on average lost money every year from 2012 to 2019 inclusive, according to CBOE Eurekahedge’s index of tail risk hedge funds. Despite having three crises to profit from since the start of 2008 — the global financial crisis, the eurozone debt crisis and the coronavirus crisis — they are still down by an average of 24 per cent over that period.
- moistly 6y ago
  Yes. One-quarter of 3.3% of your portfolio would lose value during that period. That is the cost of the insurance that paid off when 96.7% of your portfolio would have lost over 12% of its value. The hedge is not your primary investment. It is an insurance policy. Crashes happen several times over an investor’s lifetime.
  - gwern 6y ago
    > The hedge is not your primary investment. It is an insurance policy. Crashes happen several times over an investor’s lifetime. The more frequently they happen, the less valuable such insurance is, especially one that has such ruinously negative returns. (I'm not clear if that's -25% compared to a S&P benchmark or an absolute -25% in a period where the S&P is up like 200%+, but neither way is flattering). Note, of course, that Taleb makes all of his money from books, and that the funds he actually ran all seem to have closed ignominiously and gone down the memory-hole - despite 'black swans' like 9/11...