I spoke at a conference a couple years ago in London with Taleb. He was a marvelous speaker, but could his writing be any more pretentious? Holy sh!t is it unreadable. Reminds me of the website Unnecessary Quotes.
I counted over forty “instances” where he used quotations in a 5 and a half page article. (That doesn’t even count the over 90 instances of parentheses!!!)
Common Errors in Interpretating the Ideas of The Black Swan and Associated Papers
There are actually some really good quotes in there – I’m writing a paper on Black Swans, so stay tuned!
“Theories fail most in the tails; some domains are more vulnerable to tail events.”
Abstract:
The point of The Black Swan is that both empirical knowledge (i.e. extrapolating statistics) and a priori theories fail in the tails and it is vital to “robustify” against it using the concepts of “the fourth quadrant”. The point has been garbled by members of the economics establishment that claim mistakenly “we know that” and “we know about fat tails” or “power laws”. This is both wrong and not my point. The paper presents corrections to the misperceptions.
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Just got my copy of Bernstein’s new book The Investor’s Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between in the mail. Bernstein has previously written The Intelligent Asset Allocator and The Four Pillars of Investing.
When asked why he needed to write a third book on the same topic, he responds on his blog:
“When I wrote The Intelligent Asset Allocator, I thought I was producing a volume for the average investor. Turns out I was wrong: the book’s audience was closer to the average electrical engineer. So I tried a little harder and produced The Four Pillars of Investing. Close, but no cigar: still lots of complaints about all the math and graphs.
This time around, the approach is even more down-to-earth. I think that most of my old readers, and perhaps some new ones as well, will find the contents of this work even more readable than the last two.”
He has a free preview of the first 15 or so pages here. While I haven’t read it yet, and just skimmed it, it looks like more of the same buy and hold and rebal advice? Not sure how that helps during “Armageddon”…I’ll reserve judgment until I read it…
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From the book More Than You Know by Mauboussin:
Any time you make a bet with the best of it, where the odds are in your favor, you have earned something on that bet, whether you actually win or lose that bet. By the same token, when you make a bet with the worst of it, where the odds are not in your favor, you have lost something, whether you actually win or lose the bet. -David Slanksy, Theory of Poker
Meb,
I find it interesting that one of the themes Taleb constantly pounds is the folly of predictions made by economists, etc. Yet, upon reaching a certain level of media exposure, Taleb commenced to….making predictions.
Mauboussin is a REALLY intelligent guy. I have a huge amount of respect for him. And More Than You Know is a great read.
BTW it's SKlansky not Slansky.
Having read both the Black Swan and the Ivy Portfolio I ponder what a synthesis of the two would look like, if such a thing is possible. I suspect that one would folow the Ivy Portfolio until either a meltdown or euphoria are imminent – in other words, the extremes. Taleb claims that these are unpredictable, but this may or may not be 100% true. it's probably only mostly true. Of course, the value is in anticipating these two extreme market situations, something that the Ivy Portfolio does not claim to do. Therefore a study of market bottoms and tops (such as in the book on Bear Market Bottoms by Russell Napier) would seem to be in order. If one has the guts, one would then act outside of the Ivy Portfolio when a market top or bottom or “inflection” point is believed to be reached. For example, I received the Ivy Portfolio book in late April or early May. At that time, most (I think 4 of the 5) of the 200 day SMA were above the monthly closing prices of the indexes, so you would be out of the market except for bonds. However the market bottom was in March and quite a bit of profit was missed. Napier predicted the late first quarter bottom, based on a number of indicators. If one acted on his advice, one would have done very well. Eventually the Ivy Portfolio would have taken over the decision making after the bottom was in the rear view mirror. I wonder if this could work. Now this is not exactly the kind of Black Swan situation would call a Black Swan. He'd say they're only obvious in hindsight and those that got the market bottom right may have just been lucky. Who knows…
Having read both the Black Swan and the Ivy Portfolio I ponder what a synthesis of the two would look like, if such a thing is possible. I suspect that one would folow the Ivy Portfolio until either a meltdown or euphoria are imminent – in other words, the extremes. Taleb claims that these are unpredictable, but this may or may not be 100% true. it's probably only mostly true. Of course, the value is in anticipating these two extreme market situations, something that the Ivy Portfolio does not claim to do. Therefore a study of market bottoms and tops (such as in the book on Bear Market Bottoms by Russell Napier) would seem to be in order. If one has the guts, one would then act outside of the Ivy Portfolio when a market top or bottom or “inflection” point is believed to be reached. For example, I received the Ivy Portfolio book in late April or early May. At that time, most (I think 4 of the 5) of the 200 day SMA were above the monthly closing prices of the indexes, so you would be out of the market except for bonds. However the market bottom was in March and quite a bit of profit was missed. Napier predicted the late first quarter bottom, based on a number of indicators. If one acted on his advice, one would have done very well. Eventually the Ivy Portfolio would have taken over the decision making after the bottom was in the rear view mirror. I wonder if this could work. Now this is not exactly the kind of Black Swan situation would call a Black Swan. He'd say they're only obvious in hindsight and those that got the market bottom right may have just been lucky. Who knows…
That is TOO funny. A friend directed me to Unnecessary Quotes a while ago … and it is laugh-out-loud funny. I will never again be able to read Taleb without thinking of that. Thanks.
Mebane's system is a trend following strategy. Not a trend predicting strategy. It's the nature of the beast. By design you will not get out at the top and in at the bottom. But that doesn't matter. All you want is the fat part in the middle. Avoid it on the way down and catch it on the way up. Making or acting on predictions is a good way to get run over by a bus. And it's totally unnecessary. Develop a system (or use one from a good book
) and stick to it.
Mebane,
Thanks for the post.
In particular the reference to Michael Mauboussin's reference to Sklansky's poker theory in the context of his investment book.
As the developer of the Texas Holdem Investing concept of using poker as a tool and medium to for investor education I am always encouraged when respected investment commentators (such as your good self and Mr. Mauboussin) refer to the link between poker and investing.
Keep up the good work.
John (aka The Masked Financier)
Maybe not predictable, but avoidable….stay tuned…
Maybe not predictable, but avoidable….stay tuned…