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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 wou

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 7y 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...