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Friday, October 17, 2008

Black Swans: Vindicated

"I am very sad to be vindicated." -Nassim Taleb, Author of Black Swan

Nassim Taleb got it right. He called it years ago. A recent Bloomberg article highlights his success in anticipating and navigating the current crisis.

Taleb's `Black Swan' Investors Post Gains as Markets Take Dive: “Investors advised by “Black Swan” author Nassim Taleb have gained 50 percent or more this year as his strategies for navigating big swings in share prices paid off amid the worst stock market in seven decades.

Universa Investments LP, the Santa Monica, California-based firm where Taleb is an adviser, has about $1 billion in accounts managed to hedge clients against big moves in financial markets. Returns for the year through Oct. 10 ranged as high as 110 percent, according to investor documents. The Standard & Poor's 500 Index lost 39 percent in the same period.

“I am very sad to be vindicated,” Taleb said today in an interview in London. “I don't care about the money. We're proud we protected our investors.”

Taleb's book argues that history is littered with high- impact rare events known in quantitative finance as “fat tails.” As the founder of New York-based Empirica LLC, a hedge- fund firm he ran for six years before closing it in 2004, Taleb built a strategy based on options trading to bullet-proof investors from market blowups while profiting from big rallies.

Mark Spitznagel, Taleb's former trading partner, opened Universa last year using some of the same strategies they'd run since 1999. Pallop Angsupun manages the Black Swan Protection Protocol for clients and is overseen by Taleb and Spitznagel, Universa's chief investment officer.

“The Black Swan Protection Protocol is designed to break even 90 to 95 percent of the time,” Spitznagel said. “We happen to be in that other 5 to 10 percent environment.”

Black Swan Theory:

The black swan theory refers to a large-impact, hard-to-predict, and rare event beyond the realm of normal expectations.

Black Swan Book:

The Black Swan: The Impact of the Highly Improbable is a book about randomness and uncertainty by epistemologist Nassim Nicholas Taleb.


Nick von Mises said...

Good as Taleb's books are, I shiver when I see him cos he looks so much like Bernanke.

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