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shavinOccam


Total Posts: 210
Joined: Oct 2005
 
Posted: 2008-09-06 23:48
... in case you haven't seen yet.

http://bestdocumentaries.blogspot.com/2008_09_01_archive.html

Nonius
Founding Member
Nonius Unbound
Total Posts: 12794
Joined: Mar 2004
 
Posted: 2008-09-07 13:09

"I was a trader for 18 years and I hated it, but I stayed because it was fun..." etc.

yeah.

 


Chiral is Tyler Durden

HankScorpio


Total Posts: 480
Joined: Mar 2007
 
Posted: 2008-09-07 15:41
"...I saw the letter in 1998 from those guys who had a pseudo-Nobel in economics..."

Now that's just Nasty!

white


Total Posts: 72
Joined: Jul 2007
 
Posted: 2008-09-07 18:14
Here is a direct link to the audio:

http://s3.amazonaws.com/salt-recordings/salt-020080208-taleb/salt-020080208-taleb_web.mp3

Which is worth hearing.

Actually I don't understand the negative ratings.

You guys don't like the guy.

Why?

I think his work is good and has pretty direct applicability to trading / money management / pratical finance.

(But - yeah - sure he is arrogant.)


shavinOccam


Total Posts: 210
Joined: Oct 2005
 
Posted: 2008-09-07 20:33
i do not come to a real opinion about taleb. first, he held all these positions
according to wikipedia:

"managing director and proprietary trader at Union Bank of Switzerland (UBS)
worldwide chief proprietary arbitrage derivatives trader for currencies, commodities and non-dollar fixed income at CS-First Boston
chief currency derivatives trader for Banque Indosuez
Managing Director and worldwide head of financial option arbitrage at CIBC-Wood Gundy
derivatives arbitrage trader at Bankers Trust, proprietary trader at BNP Paribas, as well as independent option market maker on the Chicago Mercantile Exchange."

so he made tons of money trading (at least i assume they don't hand you
around on these jobs for nothing) and i would think not only ripping off clients ...
yet he mocks all people (including buffet) in the business except soros and
simmons. which is funny to me, because they are such a "banal" choice for
someone of his calibre ...

second he makes good points but goes too far. yet he is willing to bet his life on
them. in a way his awareness of black swans seems very fatalistic to me. and
this seems what it is all about: a love to debate and inspire controversy by
providing an eloquently backed up but in matter unsustainable position. if you
listen to him you can't help getting to believe that work, ambition and all these
are actually meaningless and it is only chance that matters.

third i think he is profoundly wrong in his assessment of buffet and survivorship
bias. trading is no zero sum game and we all have transaction cost against us.
so decades of beating the market is hardly a result of chance. there are simply
not enough people starting to trade to allow for that to happen. that is my personal
opinion.

very smart man. loves to act. does not need to earn money. very intellectual
sense of humor. great watch. do not take by the word. that is taleb to me at the
the moment.

FDAXHunter
Founding Member

Total Posts: 8372
Joined: Mar 2004
 
Posted: 2008-09-07 20:48
shavinOccam: trading is no zero sum game and we all have transaction cost against us.

That, especially in conjunction that you bring it up one sentence after mentioning Warren Buffet shows that how little you have actually thought about this problem.

Do you really think trading (in non-derivative markets) is a zero sum game, or even a negative expectation game?

The Figs Protocol.

shavinOccam


Total Posts: 210
Joined: Oct 2005
 
Posted: 2008-09-07 21:23
i have transaction costs against me. i guess the same accounts
for buffet. in this respect it is a negative expectation game to
start with. where is the mistake?

FDAXHunter
Founding Member

Total Posts: 8372
Joined: Mar 2004
 
Posted: 2008-09-07 21:31
Sigh...okay, let me give you a 101 in equity capital markets, because you clearly never had one:

I have a small factory. I sell shares to you in an IPO for 100. You know own 50 percent of my company. Two years later my factory is much bigger and produces more goods (thanks to the 100 I could upgrade my machines and higher a hot secretary, which motivates the workers more). The shares are worth 200. You sell them to someone else. Four years later it's even bigger and produces fourty times as much value. The shares are now worth 400.

q.e.d.

Buffet is not playing a zero-sum game. And neither is the vast majority of any producing economy.

The Figs Protocol.

shavinOccam


Total Posts: 210
Joined: Oct 2005
 
Posted: 2008-09-07 21:43
well, sorry. i thought this conversation starts at another level.
buffet has been beating the market (=the drift which you are
obviously referring to) and he has done so paying transaction
costs. and in this respect the likelihood of him doing that on
chance alone over such a long period is pretty small. smaller
than taleb indicates. that was my point.

if your point is that i have not thought through that economies
grow, well, sorry again, i haven't. touche.

jungle
Chief Rhythm Officer
CSD LLC
Total Posts: 3169
Joined: Jul 2004
 
Posted: 2008-09-07 22:29
White --- see Eric Falkenstein's critique.  To give credit where it's due, Gutenberg posted the same link in this thread.

"Where is capital safe? The mattress is looking pretty good right now." UBS FX Sales

white


Total Posts: 72
Joined: Jul 2007
 
Posted: 2008-09-08 09:48
Yes. Reducing everything to "survivorship bias" is rubbish - whether talking Buffett or Taleb - they get thru not only by random but also by skill and talent.

But if you are comparing value-buy-and-hold investor rank 511 with Buffett skill may not necessarly account for the difference between two. Still one will be the most wealthy by a large magnitude.

I think that is a fair point.

As for his style and page jungle linked to:

For me, Taleb is easily read and his over-the-top arrogance is part of what makes him entertaining. If his points has been made by others before him - well - the he gets points for popularizing them.

He makes links between behavourial finance style cognitive biases to a rightful critism of in particular the way risk is modelled in finance.

I think it is rubbish to compare him to "inventors" of perpetual machines - his points are clearly valid and perpetual machines are clearly not.

As for market returns and investment.

A traditional portfolio may be composed of (continously rebalanced) 70% fixed income part and a 30% equity part. Where the 30% equity part gets a market return / risk premium.

Taleb suggests to turn this on its head and instead start with the maximum drawdown you are willing to accept. Say 7% p.a. Then invest the remaining 93% in fixed income zero-risk instruments (that will be cash / bonds).

The 7% would go into highly risky investments - options or maybe your fannie or freddie of choice.

(This is an interesting idea.)

Wouldn't this miss out on the market return of the traditional portfolio?

(I am not sure - he cuts off the return distribution with the 7% maximum drawdown - I guess he needs to pay for that.

But he clearly tries to play something that is not gaussian distributed (at its tails at least.))


nuno


Total Posts: 278
Joined: Jul 2006
 
Posted: 2008-09-08 10:38
(I am not sure - he cuts off the return distribution with the 7% maximum drawdown - I guess he needs to pay for that.

this phrase makes it sound like he is doing something quantiative, or at least doing something. to my knowledge, he doesn't do anything quantitatively based (or at least i have never seen any of his ideas presented in a way that is remotely mathematical); in fact, to my mind he doesn't actually do (e.g., trade, build models that might be used for trading someday etc) anything. Rather, he says cryptic (and provocative) things (usually at the expense of people considered "wise") and other people impose meaning onto them and treat them as wise proclamations. In that sense he's like the peter sellers character from "being there".

if anyone knows of a mathematical version of taleb's manifesto(s), i happily stand corrected, please do let me know where i can find it.

RFMontraz
NP Italian Stallion

Total Posts: 2019
Joined: Mar 2004
 
Posted: 2008-09-08 10:54

Hi white

I don't see how this strategy can work or even seem plausible. So you lose your 7%. What's next? End of the story? You try and roll the dice on another 7%? (you shouldn't as that was your max tolerable drawdown). You wait until the 93% generates some risk free income to play with? (but that's irrelevant. Your drawdown should be inflation adjusted anyway). So what's next?


Make loans, not war

white


Total Posts: 72
Joined: Jul 2007
 
Posted: 2008-09-08 13:29
I imagine you "rebalance".

You loose your 7% - next year you take another 7% from your capital. If you gain 200% - you put half in the safe box - and continue to play with the new "7%".

So it would be a bit like the reversal-to-mean bet that is implicit in traditional portfolio rebalancing.

As for a more formal treatment:

What underlying assumptions would you model this against?

What does the return distribution of your risky bets look like? Your Fannie and Freddie like rubbish stocks or silly option plays.

Probably not gaussian, probably not easily modelled - if at all.


jungle
Chief Rhythm Officer
CSD LLC
Total Posts: 3169
Joined: Jul 2004
 
Posted: 2008-09-08 14:06

Let's say your capital is $100K, so you have $7K to spend far OTM options.  That doesn't buy many of those, White.  Meanwhile, on the other 93% you have in TBills, and your nominal return is 1-2% or -3 or -4% in real terms.  By the time you get the blowup you need (conceivably a 10y wait), the 7% is not going to be 7% of $100K, either.

Here is a quote from the proponent of the strategy: Mr. Taleb says it was the daily grind of trading in a low-volatility market that motivated him to quit. "I burned out," he says. "If I go three or four years without a big bang [in the market], I start having battle fatigue."


"Where is capital safe? The mattress is looking pretty good right now." UBS FX Sales

RFMontraz
NP Italian Stallion

Total Posts: 2019
Joined: Mar 2004
 
Posted: 2008-09-08 17:46

white, this doesn't even deserve the name "strategy". Put x% in OTM puts (or whatever) and wait for the big bang. What if it there's no big bang for x ys? What if there is a bang but not so big as you expected, so you make fuck all money anyway (this doesn't seem to bother Taleb a bit. Unclear how OTM the options should be, what tenor one would be looking at, if he'd take it to the expiry or not. If you listen to him any "crisis" - you name it - would have made him money, regardless of the depth and the lenght of it and how he would have behaved during it)

And why 7% to start with anyway? Honestly dude I don't think it's an interesting idea, it's such a vague plan that it bears no significance at all.


Make loans, not war

FDAXHunter
Founding Member

Total Posts: 8372
Joined: Mar 2004
 
Posted: 2008-09-08 17:51
So it's pretty clear that.... buying lottery tickets... is not a good business plan.

The Figs Protocol.

white


Total Posts: 72
Joined: Jul 2007
 
Posted: 2008-09-08 19:08
FDAX: If you want to do trading - you'd better get used to them monkeys.

As for Taleb - before this thread disappears into the trash can - I am not a fan - I just don't understand the massive negative ratings - there are plenty for provocateurs out there to pour your anger upon - why this guy?

The 7% - I don't know - but it seems reasonable to me - the 30-70 allocation is a traditional conservative allocation and if you have expected return on your equities around 10%, variance around 20%, you are going to see a 30% drawdown once every 20 years.

This number 30%*30% = 10% is not far from the 7% that Taleb mentions in the interview.


veroniq


Total Posts: 172
Joined: May 2007
 
Posted: 2008-09-09 10:12

white, we're not in an arithmetic class of course, but it is still slightly painful to see

"30%*30% = 10% "


FDAXHunter
Founding Member

Total Posts: 8372
Joined: Mar 2004
 
Posted: 2008-09-09 10:29
white: FDAX: If you want to do trading - you'd better get used to them monkeys.

But.... but... I don't want to do trading. I want to do traders!

The Figs Protocol.

polysena


Total Posts: 1064
Joined: Nov 2007
 
Posted: 2008-09-09 11:34
oh... Fdax... and I thought you were a romantic soul..

It takes a lot of chewing to make a good cow... http://www.youtube.com/watch?v=WiIO1qsO7W8&feature=related

FDAXHunter
Founding Member

Total Posts: 8372
Joined: Mar 2004
 
Posted: 2008-09-09 11:54
Bah... humbug! The only reason I set up NP originally was so that I can sleep with other traders.

The Figs Protocol.

Maggette


Total Posts: 1233
Joined: Jun 2007
 
Posted: 2008-09-09 12:48
"oh... Fdax... and I thought you were a romantic soul.."
just click on FDAX signature(It's goofy time...).....that's quite romantic, isn't it
Wink
I admire the guy

Ich kam hierher und sah dich und deine Leute lächeln, und sagte mir: Maggette, scheiss auf den small talk, lass lieber deine Fäuste sprechen...

shavinOccam


Total Posts: 210
Joined: Oct 2005
 
Posted: 2008-09-09 12:53
goodness. you are not just a founding MEMBER, but it is you
having SET it UP? now that explains quite something. my lord.
save your breath and finger tissue and get my IP address
banned. unfortunately there are so many great people on this
board that i once in a while cannot resist and post something.
until you - well, social retard - come around.

do me that favor, will you? ban me. but do it officially. just say it.
somewhere. say the crime, the verdict and act upon it. but don't
stalk me, will you? do not play that game that you seem to be
obsessed with. do it in the open. and please do not try to get
my real name and identity as you once tried.

oh. stupid me. you have that already, right? since you "set it up".
and me - naive as i am - gave you a non-fake email address. okay.
i am done. this is getting too far.

you are a freak and all the "ph"s in the world won't cover the
true nature of who you are. congratulations. successful endeavour.
this ... stinks.

Maggette


Total Posts: 1233
Joined: Jun 2007
 
Posted: 2008-09-09 13:09
WtF?!?Confused
who are you talking to/about?....FDAX? Whats going on here? Did I insult somebody?
Strange.....
cheers

Ich kam hierher und sah dich und deine Leute lächeln, und sagte mir: Maggette, scheiss auf den small talk, lass lieber deine Fäuste sprechen...
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