The history of Universa Investments featuring Nassim Taleb and Mark Spitznagel discussing tail hedging, their 20+ years of working together, and the importance of risk mitigation in investing.
.org (UNOFFICIAL news site)
The history of Universa Investments featuring Nassim Taleb and Mark Spitznagel discussing tail hedging, their 20+ years of working together, and the importance of risk mitigation in investing.
My experience as an equity portfolio manager for almost forty years persuades me that protecting against tail risk while preserving upside optionality is unarguably the best possible strategy for long term wealth creation AND preservation . But how to implement — how do individuals with significant financial assets but less than Universa’s minimums protect themselves? Structuring a portfolio so it is anti-fragile is the ideal, but this requires special mathematical skills, as well as an infrastructure beyond the reach of most individuals. My alternative is to strive for robustness, e.g., physical gold and short treasuries when — as I believe — most financial assets are selling at prices far in excess of any sensible assessment of business value . Is robustness the best an individual investor can do or is a superior alternative?
Excellent analysis, Mr. Mitchell. You’ve expressed thoughts many of us have, especially those of us who firmly believe in tail risk hedging, but don’t have the assets to participate. Can we not get together and appeal to Universa for a “little guy” place at the table. Even Buffett has a “small” seat at his table for us little folks (BRK/B).
Mr. Huber, thank you, and my apology for leaving out the word “there” in the last sentence. I am sure Messers Spitznagel and Taleb don’t need the money and doubt they would want the headache. Further, I am not sure they could implement their approach within a fund structure. I would be delighted to be proven wrong. I hope, however, that if they see that there are many people in our situation with similar convictions, they might write an article or do a YouTube discussing what we can do short of investing in some sort of Universa fund. Diversification fails just when you need it the most. It would be a shame if the optimal strategy were accessible only to the priesthood of mathematical cognoscenti and investment pools with an eight figure minimum. Following the principle of skin in the game, let me tell you what I do. I have physical gold as a hedge against monetary disorder. Most of the rest is in very short treasuries (ugh) as a means of giving me optionality in the event of a meltdown so extreme that I can buy at prices that make me bullet proof against permanent loss of capital. The drawbacks are obvious, but this is the best I can do. Buying long dated puts is a fool’s game for those who lack the necessary expertise in options. I hope our voices are heard.
Dear Mr. Mitchell and Mr. Huber
I’ve been trading commodities (both physical and futures) for more than 20 years and am very fond of Taleb’s work towards investments and even his take on life principles and ethics, I worked (for a brief period) in the Asset Management for a large bank too, so I’m not a stranger for the markets but can’t say the same about markets being stranger to me, since the more skilled and ‘technnisized’ they became more noise and BS they seem to produce; at such degree that in the best case scenario (because there is another one where you go bust!) it looks like you are playing Monopoly with your dad (you can change dad by another 3 capital letters starting with F) : you put a lot of effort/thinking and in the end if things go south you are bailed out – together with your 5 year old sister who thinks she’s playing domino – it’s a lot uncomfortable for someone who wants to walk the walk but do not clearly grasps the talk (mathematically speaking) to say the least. So while trying to absorb the necessary knowledge from him in order not to be a sucker, a couple of months ago I naively called Universa in order to invest with them and ended the call aiming for the Powerball just in order to have the proper amount to join them. I think your ideas are great and I’m really glad to have had the opportunity to find equally usd billions challenged people like me who think alike. In the end I can’t refrain from the thought that Taleb’s and Spitznagel’s approach are so precise, decisive and also great that using NNT teachings of scalability, one could apply them even at the Everest financial base camp, of course with a great help from them! I hope to be lucky enough so they will find a way of more incisively guide us thru this (via fund or lowering the initial investment) Cheers and all the best
The early days of Taleb, Spitznagel/Universa and their tail hedging strategy. Via Malcolm Gladwell, March 2002.