6 ms·

When markets melt down, these traders cash in

65 points by ksajadi 3y ago

dom111 3y ago
https://archive.is/9iRSL https://archive.is/9iRSL
AS37 3y ago
> Adapted from “Chaos Kings: How Wall Street Traders Make Billions in the New Age of Crisis” by The Wall Street Journal’s Scott Patterson, to be published on June 6 by Scribner. TL;DR Black swan events happen. Some hedge funds specialize in them. Book advertisement.
lordnacho 3y ago
Hedge fund guy here. I actually met NNT, fun character. Irreverent as always. He was talking exactly about this strategy when he came in. The thing is, trading often presents you with a tough choice: - Do something that on most days makes a bit of money, but sometimes creates big losses. - Do something that on most days loses a bit of money, but sometimes gives you a big payday. Your problem is then what to do. If you've decided that you want to wait for the big payday, how are you going to stay in business until your ticket comes in? How do you keep your investors faithful until then? This is the actual skill in this trade, btw. If you're wondering about taking the other side, the trope is that you get an even bigger job after you get fired for losing a huge amount of money in an "unforeseen event".
- gjvc 3y ago
  Excellently put
- bombcar 3y ago
  I've also read that lots of traders make money before taxes and fees. They can use skill to determine things. But "picking pennies up in front of a steamroller" has it's downsides, too. And you can be absolutely correct about what is going to happen, but off on the date and get wiped out.
- skippyboxedhero 3y ago
  I would look at Universa's record, it is horrible. I know a few guys who make money doing this but it does require more than Universa appear to be doing. Practically, I have found short-selling funds are even better...but, for reasons you mention, the economics of running these funds mean that very few exist.
- rwmj 3y ago
  Isn't there also a massive counterparty risk, since you're trying to claim money when everyone else has lost money?
  - nradov 3y ago
    For publicly traded options there isn't much counterparty risk unless the financial system completely melts down. Counterparty risk is more of an issue with other derivatives traded off market. That risk can sometimes be partially hedged, for example by purchasing credit default swaps on the counterparty.
  - lordnacho 3y ago
    It's a risk, not something that you couldn't deal with. You have to have a sensible prime broker mainly. Any of the big ones will have systems in place to protect them well in advance of you putting on this huge put option. The only guys who would blow up from this were merged earlier this year. This is assuming the entire trade is just S&P500 puts of course. A proper doom merchant might put it on in a bunch of ways, with various swaps against counterparties in different assets. It's really just OTC risk you'd care about but again if your PB isn't incompetent you will know where you can do this.
- vajrabum 3y ago
  NNT is very entertaining. He's also blown up two hedge funds. Ever notice that running a fund is an asymmetric option? The management makes money either way at least until the investors leave, but there's no clawback if the fund blows up. So, I enjoy NNT. I respect his wit and intelligence. I'll even use his insights to steer my thinking. But he's not where I want my money going. And with his books and his trips to Washington perhaps he's gotten that bigger job.
  - idoh 3y ago
    What were the hedge funds, what happened? I’m a fan of NNT, but I want to get a more complete picture of whether his “stuff” works or not, and good info is hard to come by.
    - mhh__ 3y ago
      I'd also like to know.
  - everybodyknows 3y ago
    A less successful example of this type would be Hugh Hendry, who after the implosion of his Eclectica fund is now seeking listeners willing to pay via Patreon for his weekly podcast recordings.
- blitzar 3y ago
  Anyone can be permanently bearish (it works both ways - the permanent market cheerleaders are just as bad in reverse) and then go on CNBC and tell everyone they correctly called every recession or bear market. Typically these people have called 176 of the last 8 recessions. There are plenty of fund managers out there that make some when its a bull market and make some in a bear market, they dont tend to go on tv and talk their book though.
  - LatteLazy 3y ago
    You're not wrong but... If you can get a 400:8 (50:1) returns, then betting on 176 recessions and winning 8 puts you well ahead of other traders.
    - jmccaf 3y ago
      I'm less familiar with put and call options , compared to common shares and selling short; But one of the challenges to sell short, compared to buying long, is that your upside is limited and liability unlimited. Whereas the inverse for common stock, upside is unlimited and liability is limited. If you place 176 bets and win big 8, I think will be more successful buying long , like the venture capital model.
      - LatteLazy 3y ago
        People say this, but of course if you invest via a hedge fund (or other similar corporate structure), your total downside is just whatever you invest. The fund maybe run up 1tn, or 1000tn in loses somehow, but that just means a lot of disappointed creditors meeting limited liability...
      - oh_sigh 3y ago
        There are options for limiting your losses, eg a bear put spread - buy put options at strike price X and sell put options at Y where Y < X.
      - idoh 3y ago
        If you buy an option (the right but not obligation to either buy or sell at a certain price), then your liability is limited to what you pay for it.
- miroljub 3y ago
  Taleb explained both phenomena and many others in "Antifragility" and "Skin in the game". Worth reading.
- OJFord 3y ago
  > the trope is that you get an even bigger job after you get fired for losing a huge amount of money in an "unforeseen event". Levine talks about this in Money Stuff in the sense of 'oh, they trusted you to lose a quadrillion dollars? You must be good'.
- AlbertCory 3y ago
  > I actually met NNT, fun character. Me, too. I hosted him at Google and now I have a signed copy of The Black Swan https://www.youtube.com/watch?v=S3REdLZ8Xis https://www.youtube.com/watch?v=S3REdLZ8Xis Anyone who talks about "permanent bears" does not get the concept.
- marban 3y ago
  - Do something that on most days loses a bit* of money, but sometimes gives you a big payday. Welcome to Startup Land * (or a lot)
- SkyMarshal 3y ago
  > Your problem is then what to do. If you've decided that you want to wait for the big payday, how are you going to stay in business until your ticket comes in? How do you keep your investors faithful until then? This is the actual skill in this trade, btw. I’ve been to one of the Wilmott-Taleb seminars in London. Taleb answered that question this way: 1. You buy way out of the money calls or puts which will eventually get you your big payday. Most sellers of these sort of options use Black-Scholes or similar model to price them, underestimating the frequency and/or magnitude of payout, and thus mis-pricing them. 2. Simultaneously you sell in-or-near-the-money puts or calls, which are more mathematically tractable, model-able, and thus manageable. Results in small and predictable income and payouts which you can manage to keep the fund afloat until #1 pays off. 3. Make sure your fund LP’s understand that this is essentially an insurance policy. People are accustomed to paying regular small payments for insurance against big unexpected events, and tend to accept that model for the fund too. As you say, the skill in this trade is in discovering options for #1 that are indeed mis-modeled and mis-priced, and in #2 managing that in/near-the-money portofolio as optimally as possible to cover or minimize the steady bleed from #1. It’s not easy.
  - lordnacho 3y ago
    Suppose you are right. If the near-the-money options are correctly modeled, how will you make money on them?
    - SkyMarshal 3y ago
      I don’t know, no one asked that followup question, everyone just accepted it. There’s probably more to it he didn’t elaborate on. I assume it depends partly on asymmetry of information between a more sophisticated option seller (like Universa) and buyers (especially retail). Maybe also the ability of the seller to sell a diverse heterogenous mix of options and construct the mix to achieve a small positive net revenue. Options sellers tend to blow up eventually when they sell way out-of-the-money options, and this strat avoids that at least.
    - Majromax 3y ago
      > If the near-the-money options are correctly modeled, how will you make money on them? In a hand-wavy sense, they're the hedge. A mis-priced option isn't completely mis-priced: some of the modeling is correct enough. The trick to making money is to buy the mis-priced option, but then sell back the "part" of it that is correctly priced. That leaves you holding only the part where you think you have an edge, and in turns this is what makes the "insurance" model somewhat viable.
- cs702 3y ago
  There's always a third choice: - Do nothing on most days, hold cash, earn a little interest, maybe play bridge to keep yourself entertained, and bet big only when you're sure you'll win big. Call it the Buffett approach. The main downside to it is that on most days you have nothing to do.
  - m3kw9 3y ago
    Yeah it’s called if you don’t have a strong view, you are just gambling. Bet big when you see it, but this takes experience as sometimes you think you see it but it’s really noise, or you have 5 big blind spots you didn’t consider
    - blitzar 3y ago
      Bosses dont pay you to go home early and play tennis (they should), they pay you to make money and you cant make money unless you sit there and gamble.
      - m3kw9 3y ago
        At pro trading firms they likely have edge in data speed and execution speed. Something common man won’t have
- HFguy 3y ago
  A fixed allocation to a one-size-fits-all tail risk fund doesn't work. It won't have positive returns over the long run. And its diversification benefit will not be enough to overcome the drag on performance. A tail risk strategy that is tailored to the portfolio, point in time, in an opportunistic way (e.g., when vol is cheap) can potentially work. But you need a strat like that to be part of the portfolio construction process. I dont believe that is what they are doing.
great_psy 3y ago
Any other sources that go into more technical details how those black swan funds work ? Is there a timed protocol they use to buy those options, or do they just buy when their gut tells them ?
- blitzar 3y ago
  They buy the downside options every day.
- skippyboxedhero 3y ago
  This has been a topic of significant controversy with Universa because they are selective about what they report (i.e. the ludicrous 3000% number that journalists lapped up) and the guy who runs it has (iirc) repeatedly claimed he isn't just buying puts all the time (despite the performance of the strategy suggesting he is). But...they claim to be buying moderately OOM puts (10-20%) based on value (i.e. if vol becomes expensive relative to some metric they follow then they do not buy). It is possible if you time this correctly, it is profitable. But the strategy they are actually running (whether they are timing or not, who knows) does not appear to be profitable...which is true for put buying (I am not an options person but I believe this is regime-based, it has been profitable in the past but isn't today).
  - candiodari 3y ago
    I wonder how this strategy is affected by the 2008 experience. You see, back then all sorts of, frankly, illegal measures were used to prevent those who bet against the housing market to cash out. Markets were frozen, contracts and even stocks artificially priced, for most investors right until the contracts were worthless due to bankruptcy, as pointed out in "the Big Short". Yes, VERY few investors did exactly the right thing at exactly the right time and got lucky. https://www.youtube.com/watch?v=SQTbbUASPLQ https://www.youtube.com/watch?v=SQTbbUASPLQ Wall Street outright lied to offload known crashed investments to unsuspecting buyers. Again, this is obviously highly illegal. Nobody got punished, we can argue about why not, but one can remark it would have seriously affected the government. https://www.youtube.com/watch?v=whlzFWwVv98 https://www.youtube.com/watch?v=whlzFWwVv98 It would have made both parties unelectable for a century because Will Emerson would have been forced "to take his hand off the scale". https://www.youtube.com/watch?v=2f2kGHcdJYU https://www.youtube.com/watch?v=2f2kGHcdJYU (second part of this clip, after 1m05s) The banks will not play fair. This can be proven by pointing out that they simply can't. If they make profits, they get those out of the company rapidly, and by design, the system cannot pay out the contracts it underwrites beyond a minimal "safety margin". They simply cannot cover the contracts they underwrite in the event of a crash, they don't have the money. You'd have to hope that the FED covers those contracts ... and ... not even if hell freezes over will they do so. And of course even this is ignoring real "black swan" events. Here's the thing: if a real meteor or comet hits earth, for example, black swan investors won't get paid ... and they won't even care.
seanhunter 3y ago
It's definitely the case that the truth seems quite different from the marketing speak. For example, NNT was constantly in the news during the 2008 financial crisis pontificating about this and that and yet his fund was far from the best performer during that time even though you'd think that sort of meltdown would be ideal for his supposed crash put strategy. As always do your own research before you actually put any money into anything.
- dfxm12 3y ago
  As always do your own research before you actually put any money into anything. For most people, trying to do this research would be a waste of time and maybe do more harm than good. This is all very complex and esoteric, not comprehensible by a lay person, even if you can tell the truth from the marketing speak. I think telling someone to do their own research could make people more susceptible to scams.
  - seanhunter 3y ago
    If you find it complex and esoteric you shouldn’t be putting your money into it. As Warren Buffet said if he’s in an investment meeting and someone starts using calculus he keeps one hand on his wallet and heads for the door.
    - dfxm12 3y ago
      I disagree with this advice, too. Most people have no formal training in this. That doesn't mean they shouldn't invest. Gatekeeping investments is also an issue contributing to the systemic class immobility in the US, but I supposed that's another issue. In the same way, my dad isn't an expert in buying or using computers. This doesn't mean he shouldn't buy one, or wouldn't get use out of one. He knows he can ask me for advice or give me a budget and I'll just take care of it for him.
      - seanhunter 3y ago
        Of course, but that’s not at all what that advice is saying and I think you know that. He (and I) is not saying don’t invest. He (and I) is saying don’t invest in products you don’t understand. Invest in stocks in real businesses where you can see how and why they make money. Invest in low-cost index funds that (on average) give a really good return over time. Don’t invest in fancy structured products, hedge funds, options strategies etc unless you are able to understand the strategy and why it makes money, what it’s volatility is etc. That isn’t gatekeeping, it’s a simple defense against getting ripped off while also allowing you to invest in the things that have historically given the best returns over time (especially risk-adjusted).
munificent 3y ago
> Taleb has argued that our increasingly unstable world is the paradoxical result of humankind’s efforts to control it with technology, quantitative models, and ubiquitous just-in-time optimization, resulting in an ever-more-complex, human-built, fragile society susceptible to shocks. Extreme events “are necessarily increasing as a result of complexity, interdependence between parts, globalization and the beastly thing called ‘efficiency’ that makes people now sail too close to the wind,” he wrote in his 2012 book “Antifragile.” When the market can respond to events faster, efficiency increases. But, as anyone who's done any synthesizer can tell you, if you have faster feedback loops, you also increase the potential amount of resonance in the system. The market is a highly interrelated graph of feedback loops. As those get faster and with less damping, we should expect wilder and wilder oscillations.
- SV_BubbleTime 3y ago
  I mock the MBA’ification of businesses over the last 40 years. We didn’t have supply chain fragility, before everything HAD to be ultra lean. We didn’t HAVE to squeeze every single dollar. Etc The quote from the 2012 book has me beat on even casually realizing the issues with supply chain by a decade. I should probably read it!
ganeshkrishnan 3y ago
>The stock market was crashing. >He had no idea why. No one did That's because some of the largest hedge funds had invested at capacity and retail investors had huge call volume. The market always has a contrarian approach. Currently the SPX is on a ripping bull market that's because most of the retail is short. It started with the one word tweet by Michael Burry "sell" which caused retail to pile on shorts. The current market is awfully bearish and SPX bull market is roaring even if inflation came in higher than expected and NFP was twice the consensus. The bull market beatings will continue till the short sellers morale improves. Markets will remain irrational longer than you can remain solvent.

65 points by ksajadi 3y ago

https://archive.is/9iRSL https://archive.is/9iRSL

AS37 3y ago

> Adapted from “Chaos Kings: How Wall Street Traders Make Billions in the New Age of Crisis” by The Wall Street Journal’s Scott Patterson, to be published on June 6 by Scribner. TL;DR Black swan events happen. Some hedge funds specialize in them. Book advertisement.

lordnacho 3y ago

Hedge fund guy here. I actually met NNT, fun character. Irreverent as always. He was talking exactly about this strategy when he came in. The thing is, trading often presents you with a tough choice: - Do something that on most days makes a bit of money, but sometimes creates big losses. - Do something that on most days loses a bit of money, but sometimes gives you a big payday. Your problem is then what to do. If you've decided that you want to wait for the big payday, how are you going to stay in business until your ticket comes in? How do you keep your investors faithful until then? This is the actual skill in this trade, btw. If you're wondering about taking the other side, the trope is that you get an even bigger job after you get fired for losing a huge amount of money in an "unforeseen event".

gjvc 3y ago
Excellently put
bombcar 3y ago
I've also read that lots of traders make money before taxes and fees. They can use skill to determine things. But "picking pennies up in front of a steamroller" has it's downsides, too. And you can be absolutely correct about what is going to happen, but off on the date and get wiped out.
skippyboxedhero 3y ago
I would look at Universa's record, it is horrible. I know a few guys who make money doing this but it does require more than Universa appear to be doing. Practically, I have found short-selling funds are even better...but, for reasons you mention, the economics of running these funds mean that very few exist.
rwmj 3y ago
Isn't there also a massive counterparty risk, since you're trying to claim money when everyone else has lost money?
- nradov 3y ago
  For publicly traded options there isn't much counterparty risk unless the financial system completely melts down. Counterparty risk is more of an issue with other derivatives traded off market. That risk can sometimes be partially hedged, for example by purchasing credit default swaps on the counterparty.
- lordnacho 3y ago
  It's a risk, not something that you couldn't deal with. You have to have a sensible prime broker mainly. Any of the big ones will have systems in place to protect them well in advance of you putting on this huge put option. The only guys who would blow up from this were merged earlier this year. This is assuming the entire trade is just S&P500 puts of course. A proper doom merchant might put it on in a bunch of ways, with various swaps against counterparties in different assets. It's really just OTC risk you'd care about but again if your PB isn't incompetent you will know where you can do this.
vajrabum 3y ago
NNT is very entertaining. He's also blown up two hedge funds. Ever notice that running a fund is an asymmetric option? The management makes money either way at least until the investors leave, but there's no clawback if the fund blows up. So, I enjoy NNT. I respect his wit and intelligence. I'll even use his insights to steer my thinking. But he's not where I want my money going. And with his books and his trips to Washington perhaps he's gotten that bigger job.
- idoh 3y ago
  What were the hedge funds, what happened? I’m a fan of NNT, but I want to get a more complete picture of whether his “stuff” works or not, and good info is hard to come by.
  - mhh__ 3y ago
    I'd also like to know.
- everybodyknows 3y ago
  A less successful example of this type would be Hugh Hendry, who after the implosion of his Eclectica fund is now seeking listeners willing to pay via Patreon for his weekly podcast recordings.
blitzar 3y ago
Anyone can be permanently bearish (it works both ways - the permanent market cheerleaders are just as bad in reverse) and then go on CNBC and tell everyone they correctly called every recession or bear market. Typically these people have called 176 of the last 8 recessions. There are plenty of fund managers out there that make some when its a bull market and make some in a bear market, they dont tend to go on tv and talk their book though.
- LatteLazy 3y ago
  You're not wrong but... If you can get a 400:8 (50:1) returns, then betting on 176 recessions and winning 8 puts you well ahead of other traders.
  - jmccaf 3y ago
    I'm less familiar with put and call options , compared to common shares and selling short; But one of the challenges to sell short, compared to buying long, is that your upside is limited and liability unlimited. Whereas the inverse for common stock, upside is unlimited and liability is limited. If you place 176 bets and win big 8, I think will be more successful buying long , like the venture capital model.
    - LatteLazy 3y ago
      People say this, but of course if you invest via a hedge fund (or other similar corporate structure), your total downside is just whatever you invest. The fund maybe run up 1tn, or 1000tn in loses somehow, but that just means a lot of disappointed creditors meeting limited liability...
    - oh_sigh 3y ago
      There are options for limiting your losses, eg a bear put spread - buy put options at strike price X and sell put options at Y where Y < X.
    - idoh 3y ago
      If you buy an option (the right but not obligation to either buy or sell at a certain price), then your liability is limited to what you pay for it.
miroljub 3y ago
Taleb explained both phenomena and many others in "Antifragility" and "Skin in the game". Worth reading.
OJFord 3y ago
> the trope is that you get an even bigger job after you get fired for losing a huge amount of money in an "unforeseen event". Levine talks about this in Money Stuff in the sense of 'oh, they trusted you to lose a quadrillion dollars? You must be good'.
AlbertCory 3y ago
> I actually met NNT, fun character. Me, too. I hosted him at Google and now I have a signed copy of The Black Swan https://www.youtube.com/watch?v=S3REdLZ8Xis https://www.youtube.com/watch?v=S3REdLZ8Xis Anyone who talks about "permanent bears" does not get the concept.
marban 3y ago
- Do something that on most days loses a bit* of money, but sometimes gives you a big payday. Welcome to Startup Land * (or a lot)
SkyMarshal 3y ago
> Your problem is then what to do. If you've decided that you want to wait for the big payday, how are you going to stay in business until your ticket comes in? How do you keep your investors faithful until then? This is the actual skill in this trade, btw. I’ve been to one of the Wilmott-Taleb seminars in London. Taleb answered that question this way: 1. You buy way out of the money calls or puts which will eventually get you your big payday. Most sellers of these sort of options use Black-Scholes or similar model to price them, underestimating the frequency and/or magnitude of payout, and thus mis-pricing them. 2. Simultaneously you sell in-or-near-the-money puts or calls, which are more mathematically tractable, model-able, and thus manageable. Results in small and predictable income and payouts which you can manage to keep the fund afloat until #1 pays off. 3. Make sure your fund LP’s understand that this is essentially an insurance policy. People are accustomed to paying regular small payments for insurance against big unexpected events, and tend to accept that model for the fund too. As you say, the skill in this trade is in discovering options for #1 that are indeed mis-modeled and mis-priced, and in #2 managing that in/near-the-money portofolio as optimally as possible to cover or minimize the steady bleed from #1. It’s not easy.
- lordnacho 3y ago
  Suppose you are right. If the near-the-money options are correctly modeled, how will you make money on them?
  - SkyMarshal 3y ago
    I don’t know, no one asked that followup question, everyone just accepted it. There’s probably more to it he didn’t elaborate on. I assume it depends partly on asymmetry of information between a more sophisticated option seller (like Universa) and buyers (especially retail). Maybe also the ability of the seller to sell a diverse heterogenous mix of options and construct the mix to achieve a small positive net revenue. Options sellers tend to blow up eventually when they sell way out-of-the-money options, and this strat avoids that at least.
  - Majromax 3y ago
    > If the near-the-money options are correctly modeled, how will you make money on them? In a hand-wavy sense, they're the hedge. A mis-priced option isn't completely mis-priced: some of the modeling is correct enough. The trick to making money is to buy the mis-priced option, but then sell back the "part" of it that is correctly priced. That leaves you holding only the part where you think you have an edge, and in turns this is what makes the "insurance" model somewhat viable.
cs702 3y ago
There's always a third choice: - Do nothing on most days, hold cash, earn a little interest, maybe play bridge to keep yourself entertained, and bet big only when you're sure you'll win big. Call it the Buffett approach. The main downside to it is that on most days you have nothing to do.
- m3kw9 3y ago
  Yeah it’s called if you don’t have a strong view, you are just gambling. Bet big when you see it, but this takes experience as sometimes you think you see it but it’s really noise, or you have 5 big blind spots you didn’t consider
  - blitzar 3y ago
    Bosses dont pay you to go home early and play tennis (they should), they pay you to make money and you cant make money unless you sit there and gamble.
    - m3kw9 3y ago
      At pro trading firms they likely have edge in data speed and execution speed. Something common man won’t have
HFguy 3y ago
A fixed allocation to a one-size-fits-all tail risk fund doesn't work. It won't have positive returns over the long run. And its diversification benefit will not be enough to overcome the drag on performance. A tail risk strategy that is tailored to the portfolio, point in time, in an opportunistic way (e.g., when vol is cheap) can potentially work. But you need a strat like that to be part of the portfolio construction process. I dont believe that is what they are doing.

great_psy 3y ago

Any other sources that go into more technical details how those black swan funds work ? Is there a timed protocol they use to buy those options, or do they just buy when their gut tells them ?

blitzar 3y ago
They buy the downside options every day.
skippyboxedhero 3y ago
This has been a topic of significant controversy with Universa because they are selective about what they report (i.e. the ludicrous 3000% number that journalists lapped up) and the guy who runs it has (iirc) repeatedly claimed he isn't just buying puts all the time (despite the performance of the strategy suggesting he is). But...they claim to be buying moderately OOM puts (10-20%) based on value (i.e. if vol becomes expensive relative to some metric they follow then they do not buy). It is possible if you time this correctly, it is profitable. But the strategy they are actually running (whether they are timing or not, who knows) does not appear to be profitable...which is true for put buying (I am not an options person but I believe this is regime-based, it has been profitable in the past but isn't today).
- candiodari 3y ago
  I wonder how this strategy is affected by the 2008 experience. You see, back then all sorts of, frankly, illegal measures were used to prevent those who bet against the housing market to cash out. Markets were frozen, contracts and even stocks artificially priced, for most investors right until the contracts were worthless due to bankruptcy, as pointed out in "the Big Short". Yes, VERY few investors did exactly the right thing at exactly the right time and got lucky. https://www.youtube.com/watch?v=SQTbbUASPLQ https://www.youtube.com/watch?v=SQTbbUASPLQ Wall Street outright lied to offload known crashed investments to unsuspecting buyers. Again, this is obviously highly illegal. Nobody got punished, we can argue about why not, but one can remark it would have seriously affected the government. https://www.youtube.com/watch?v=whlzFWwVv98 https://www.youtube.com/watch?v=whlzFWwVv98 It would have made both parties unelectable for a century because Will Emerson would have been forced "to take his hand off the scale". https://www.youtube.com/watch?v=2f2kGHcdJYU https://www.youtube.com/watch?v=2f2kGHcdJYU (second part of this clip, after 1m05s) The banks will not play fair. This can be proven by pointing out that they simply can't. If they make profits, they get those out of the company rapidly, and by design, the system cannot pay out the contracts it underwrites beyond a minimal "safety margin". They simply cannot cover the contracts they underwrite in the event of a crash, they don't have the money. You'd have to hope that the FED covers those contracts ... and ... not even if hell freezes over will they do so. And of course even this is ignoring real "black swan" events. Here's the thing: if a real meteor or comet hits earth, for example, black swan investors won't get paid ... and they won't even care.

seanhunter 3y ago

It's definitely the case that the truth seems quite different from the marketing speak. For example, NNT was constantly in the news during the 2008 financial crisis pontificating about this and that and yet his fund was far from the best performer during that time even though you'd think that sort of meltdown would be ideal for his supposed crash put strategy. As always do your own research before you actually put any money into anything.

dfxm12 3y ago
As always do your own research before you actually put any money into anything. For most people, trying to do this research would be a waste of time and maybe do more harm than good. This is all very complex and esoteric, not comprehensible by a lay person, even if you can tell the truth from the marketing speak. I think telling someone to do their own research could make people more susceptible to scams.
- seanhunter 3y ago
  If you find it complex and esoteric you shouldn’t be putting your money into it. As Warren Buffet said if he’s in an investment meeting and someone starts using calculus he keeps one hand on his wallet and heads for the door.
  - dfxm12 3y ago
    I disagree with this advice, too. Most people have no formal training in this. That doesn't mean they shouldn't invest. Gatekeeping investments is also an issue contributing to the systemic class immobility in the US, but I supposed that's another issue. In the same way, my dad isn't an expert in buying or using computers. This doesn't mean he shouldn't buy one, or wouldn't get use out of one. He knows he can ask me for advice or give me a budget and I'll just take care of it for him.
    - seanhunter 3y ago
      Of course, but that’s not at all what that advice is saying and I think you know that. He (and I) is not saying don’t invest. He (and I) is saying don’t invest in products you don’t understand. Invest in stocks in real businesses where you can see how and why they make money. Invest in low-cost index funds that (on average) give a really good return over time. Don’t invest in fancy structured products, hedge funds, options strategies etc unless you are able to understand the strategy and why it makes money, what it’s volatility is etc. That isn’t gatekeeping, it’s a simple defense against getting ripped off while also allowing you to invest in the things that have historically given the best returns over time (especially risk-adjusted).

munificent 3y ago

> Taleb has argued that our increasingly unstable world is the paradoxical result of humankind’s efforts to control it with technology, quantitative models, and ubiquitous just-in-time optimization, resulting in an ever-more-complex, human-built, fragile society susceptible to shocks. Extreme events “are necessarily increasing as a result of complexity, interdependence between parts, globalization and the beastly thing called ‘efficiency’ that makes people now sail too close to the wind,” he wrote in his 2012 book “Antifragile.” When the market can respond to events faster, efficiency increases. But, as anyone who's done any synthesizer can tell you, if you have faster feedback loops, you also increase the potential amount of resonance in the system. The market is a highly interrelated graph of feedback loops. As those get faster and with less damping, we should expect wilder and wilder oscillations.

SV_BubbleTime 3y ago
I mock the MBA’ification of businesses over the last 40 years. We didn’t have supply chain fragility, before everything HAD to be ultra lean. We didn’t HAVE to squeeze every single dollar. Etc The quote from the 2012 book has me beat on even casually realizing the issues with supply chain by a decade. I should probably read it!

ganeshkrishnan 3y ago

>The stock market was crashing. >He had no idea why. No one did That's because some of the largest hedge funds had invested at capacity and retail investors had huge call volume. The market always has a contrarian approach. Currently the SPX is on a ripping bull market that's because most of the retail is short. It started with the one word tweet by Michael Burry "sell" which caused retail to pile on shorts. The current market is awfully bearish and SPX bull market is roaring even if inflation came in higher than expected and NFP was twice the consensus. The bull market beatings will continue till the short sellers morale improves. Markets will remain irrational longer than you can remain solvent.