Eddie Elfenbein had an interesting take on the various media appearances by Nassim Nicholas Taleb. He titled the post Time To Go On The Record. Amusingly enough I had the exact opposite take in this post from February after Taleb and Nouriel Roubini appeared together on CNBC.
Eddie would like Taleb to name names in terms of specific and actionable advice in order to hold him accountable. Obviously I can't say Eddie is wrong but I don't necessarily think investment ideas is the best way to utilize every investment resource. If you read this and other blogs then you know who Taleb is and you probably have some sort of opinion about him--while not the most polarizing person I can think of it does seem like most folks do have an opinion.
If you have read either or both of his books why did you read them? If you see an interview with him why do you read it (assuming you would)? If you know he is going to be on a program why do you watch it (assuming you would)? What has been Taleb's contribution to this decade (assuming you think he has made one)?
I tend to have very little interest in stock picks made in print or on TV, by Taleb or most other people. If I think the person has a lot to add, either by virtue of having been very correct in the past or their making an outstanding first impression, then I want to hear about their process to reach their conclusions. For example if Jimmy Rogers and Marc Faber each think farmland is a good investment I would like to read about the process that takes them down the road to this opinion as opposed to just saying "buy Black Earth Farming (BLERF)."
BTW I do not own BLERF, am unlikely to own BLERF and am not recommending BLERF to anyone. Why mention BLERF at all then? When I first wrote about farmland stocks, maybe inspired by something I read from Rogers or Faber, I stumbled across the stock on my own. I read something about farmland stocks and began to look for what was out there. The theme is interesting and the stocks may or may not be interesting as well--that is up to you.
I do believe Taleb has made a contribution to the investing world in this decade. His contribution has been about how to think about allocating risk, where to take risk, where not to take risk, how to assess certain forms of sentiment, the various foibles that people are prone to. I view this more along the lines of building blocks/how to be a better thinker--even if you think what he says is hooey, that is what he writes about in his books. This has evolved into his commenting in the press on what is wrong with the global financial system. Again, even if you think he is full of hot air that is what he talks about.
The various pools of capital he has been associated with in the past have, to my understanding, focused on the occasional enormous moves that sometimes occur in capital markets via sitting on a lot of cash with a few out of the money options. I further believe the success of this has been middling as from 2003-2007 there were very few huge moves.
If he writes about how to think and bets on long shots using broad-based options then what is the value in having his opinion about a particular stock? I'm not sure he has built much of a foundation to convince people he is a stock picker.
Eddie notes that Taleb thinks this period of time is worse than the 1930s but is frustrated that Taleb doesn't say what to do with that opinion. At 929 the SPX is down 40% from its peak. If you believe that Taleb is correct and again he is saying this is worse than the 1930s then don't you believe that the market still has several hundred more SPX point to fall? If you believe this then what more do you want Taleb to tell you?
Hopefully this debate has utility and maybe even whips up a few comments?
Wikinvest Wire
15 comments:
Taleb is correct, but so is Grantham.
The market will continue this bull phase until it stops. This will make Taleb and Roubini look wrong. Once they are discredited and everyone is happy - watch out!
Very true.
Roger, I agree completely.
I haven't read Taleb's book, but I note his background is in mathematics, not in finance, securities analysis or trading. So why on earth would someone think that the best way to access his wisdom would be by asking for trading advice?
Roger,
in taleb in his book Fooled by Randomness points out that the bears or the bulls did not survive the market but the traders that protected with options did survive in the long term. However, by placing bets with out of the money options is almost impossible to consider that as investment. If to trade on a short term basis takes lots of material (knowledge), thinking (analysis, forecasting, ...) and luck. Long term prediction, are not only harder but only very few get it write. So to trade such asset class (out of the options) successfully is a six-sigma event. However one can use out of the money options as insurance for protection the portfolio or the capital. Warren Buffett has ventured out into derivative by selling out of the money put (I think 10 years) on the S&P because he thinks in 10 years we will be higher than today. He also is using the proceeds to strengthen BRK balance sheet. Selling uncovered options is out too risky and I am not warren to make such predictions. Can we have a 4 SIGMA EVENT WHERE IN 10 years we will be lower that today. That would be a colourless swan, and would not bet my life. Taleb makes a good point about protection one's self. My protection is two fold hold cash and from part of the proceeds on the profits buy undervalued stocks. My cost for purchasing stocks is zero and the sky is the limit. I have not purchased any stocks from the last two proceeds because the Italian market was two weeks behind the US and though that I could have purchased these Italian companies at a lower price, however I recently purchased GRF.mi at cost zero. If we pick up into a bull market I should do OK and still have my cash. If we have a bear market and my stocks go to zero then I have not lost anything and still have cash. If we go to war that I am covered because I have taken some protection to survive or my family survive. So you are correct, to get out of taleb's books is the process. Perhaps a person that thinks allays has been doing that sort of mental process. Taleb just collected such and place it into a book. Roger, one should always have a fallback plan. I live in Italy, but if I had been in the US today I would be either dead, homeless of on death row. I was all alone in the US and you can become a scapegoat for some wicked people. I had my Italian citizen and here I am, answering your article. I was no godfather's son. I had no money, no relatives and no one. So when I came to Italy what help me was the few American jeans and some electronic items so that when someone was nice I could give them something. Those Items where more useful than money. And today I have two kids and a wonderful family. Read how some Jews save themselves from the horrible times of the holocaust. What saved them were items like jewels, paintings, and pocket money. The rest did nothing. Land bank accounts, business, were worthless. So sometimes thinking about what options can I build for the trading life and the personal life is a must.
Jeff from Milan, Italy
Roger - I like what you're saying about Taleb's contribution to our risk allocation process.
I occasionally have thoughts about things I wouldn't do like wiping out the whole portfolio and going100% to an oil etf. This because I have 100% confidence that oil will go much higher and I'm only counting on an 7-8% increase per year with my funds and stocks. So I could literally buy one oil etf and set a sell target 30% higher than cost basis within the next three years - if it reached the target next month, then I'm done investing until it goes back down.
I typically attribute this type of wild idea to Taleb although Jim Rogers says things similar in a different way. That's why these guys get indignant when asked for a stock pick - I think the question actually offends them as it demonstrates the person asking hasn't been listening to their philosophical commentary.
My interest in financial media interviews tends to be limited to these outsiders - I have always been afraid of the buy-hold-index-easy! strategy not working, like the 20th century was special and the buy-hold herd demonstrates a massive hindsight bias. So personally the Talebs of the world get me thinking creatively.
Matt your comment inspires a way to look at this.
If you could have a five minute conversation with Taleb (assuming this was of interest), what you ask him?
"hey whaddya think about Cisco here?"
Publicity is publicity. Taleb has books to sell. He's not on TV to make stock picks. He's there to get his face and name in front of people.
Taleb also talks about the unknowable future, but he is not really a random walker.
He also disparages fortune tellers, I mean, forecasters..ahem..RR...ahem. So it is no surprise he does not make recommendations and predictions specifically..his skeptical empiricism does not permit him to believe that he knows the furture (what to recomend specifically)
Taleb does not do interviews for money from books . He has done very well for himself this past two years. He does not believe in the normal distribution "bell curve" for financial returns. To talk about three, four or six sigma events misses his thesis. He is about catastrophic financial disasters, which are not predicted or predictable, by him or anyone else.
If I could ask Taleb a question, I would like to hear him expound on scalability as a functionof future returns as a thesis for investing. I would also like to know which countries he would consider as offering the best risk to reward. He had interesting brief observations on both these topics in his books, and would like to hear more.
Sam
One horoscope will always be correct.
You people are fools that now nothing about investing. If you cannot do the calculations in your head, then you are a fool reading psuedo science economic models trying to predict the future.
Study earthquake science if you'd like to understand the difficultly of predicting the future.
Invest based on the facts today and forget about all the future predictors, it is all garbage.
For example, buy land if you can buy it wholesale and cheaping then you can sell it TODAY retail. Simple.
The best investment advice I ever received was this:
The best laid investment program rarely works as predicted.
The best investment I have ever witnessed:
My 99 year old mother put $39.00 into the social security system. She has been collecting monthly checks since age 62 and presently receives over $1200/month.
Roger,
I agree with you, when you talk about being as, if not more, interested in hearing the process by which a position was arrived at, rather than just "buy ABC" or sell "XVZ". It sort of falls along the lines of the Bibical saying about giving a man a fish, and feeding him for a day, or teaching him how to fish, and feeding him for life.
Jan
Jan, exactly...
"we're not handing out fish here people."
I'd ask him how the heck we're supposed to grow money, since he believes citizens shouldn't invest in financial markets.
You might want to consider this: What you do in the market and how well you do in the market has NOTHING to do with financials or mathematics. It has solely to do with how your fellow investor is conducting himself. It is the output of collective reasoning (or lack thereof) that drive valuations.
"Extraordinary delusions and the maddening of crowds" would be a good primer for this subject.
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