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Strategies & Market Trends : Value Investing

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To: Spekulatius who wrote (38584)	7/23/2010 12:02:50 PM
From: E_K_S	Read Replies (2) of 78670

Articles from the New Yorker Blowing Up April 22 & 29, 2002 DEPARTMENT OF FINANCE gladwell.com How Nassim Taleb turned the inevitability of disaster into an investment strategy From the article:"...In the summer of 1997, Taleb predicted that hedge funds like Long Term Capital Management were headed for trouble, because they did not understand this notion of fat tails. Just a year later, L.T.C.M. sold an extraordinary number of options, because its computer models told it that the markets ought to be calming down. And what happened? ..." ================================================================== This was posted on another thread and provides a glimpse into Taleb's thinking. The way I see it is that the "Black Swan" event has a much bigger impact than once thought (a fatter potential return based on the expected probability of the event) due to the effect of 2nd & 3rd derivative products that amplify the total financial impact of the event. There is also a possible cascading effect of the total financial impact that these models can not predict. It's an interesting concept to study but very difficult to actually trade on. EKS

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