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Strategies & Market Trends : Value Investing

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To: Spekulatius who wrote (38563)	7/22/2010 1:00:56 PM
From: Spekulatius	1 Recommendation Read Replies (1) of 78673

I read two books during my vacation. Both left a deep impression on me: Fooled by Randomness by Nissim Taleb. Taleb talks about risk in his book and how humans constantly underestimate the odds of unlikely (fat tail) events. Well he seems to make a nice living off from those bets that are not supposed to pay off. He mentions many misconcecptions and why Wall Street ignores fat tail risk by definition due to the incentive system (if I make a profit it's mine, if it blows up it's somebody else problem). he also shows that humans are not wired to understand probabilities. This is a very valuable book for investors. interesting link to this subject: fooledbyrandomness.com "The Big short" by Michael Lewis. A great an easy read - this book is hard to lay away. It shows how the housing bubble evolved through Wall streets assistance and stupidity. Not only that but it helped my understand what really happened. I did not understand that a CDO is a fully synthetic paper (side bet on mortgages) and they are born with a credit default swap bought by somebody betting against the underlying mortgages (those risk premiums essentially go to the owner of the CDO as interest as long as the CDO perform). This kind of makes somebody wonder why anybody would buy the stuff to begin with, instead of the real mortgages which were bad enough. Very colorful written it shows many players that started to short mortgages (Mike Burry, Cornwall, Eismann, Lipmann etc.) After reading this book and Talebs, I am pretty sure we will see another blowup of epic proportions whithin the financial markets, probably worse than the one that is just behind us (or is it really?). kind of makes me paranoid and that is probably a good thing.

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