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Nassim N. Taleb on Spurious Tails in the Investment Industry

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Nassim has just posted on his Facebook Page a 3-page PDF titled: Why It is No Longer a Good Idea to Be in The Investment Industry.

A spurious tail is the performance of a certain number of operators that is entirely caused by luck, what is called the “lucky fool” in Taleb (2001). Because of winner-take-all-effects (from globalization), spurious performance increases with time and explodes under fat tails in alarming proportions. An operator starting today, no matter his skill level, and ability to predict prices, will be outcompeted by the spurious tail. This paper shows the effect of powerlaw distributions on such spurious tail.

Unique Coverage/Mentions Around the Web:

The Wall Street Journal (MarketBeat Blog): Nassim Taleb: Stay Out of the Investment Industry
TIME.com (Investing): Nassim Taleb: In the Investment Biz, Luck Trumps Skill, So Take Your Talent Elsewhere
CNBC: Nassim Taleb: Stay Out of Finance!
Business Insider: NASSIM TALEB WARNS: Stay Out Of The Investment Industry.
Streetcoup: Nassim Taleb: Aspiring Money Managers Will Fail
reddit: “Black Swan” Author Nassim Taleb: Stay Out of the Investment Industry
Mindful Money: Nassim Taleb – Why you should avoid the investment industry

Nassim Taleb on Twitter (‏@nntaleb):

WSJ TOTALLY misreprsntd: my paper NOT abt “lucky fool” (old) but about the effect of fat tails and globalization; only @felixsalmon got it

Felix Salmon: The secret to success in the arts

More here, here, here, here, here, and here.

Upcoming Talk at the Free Library of Philadelphia

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Nassim Taleb will be speaking at an upcoming Author Event held by the Free Library of Philadelphia (FLP) on Thursday, November 29, 2012 at 7:30PM.

The cost is $15 for General Admission, and $7 Students ($USD) and is on at Central Library (1901 Vine Street, Philadelphia, PA 19103). The talk coincides with the release of his new book and bears the same title: Antifragile: Things That Gain from Disorder.

View the event on the FLP Website.

Nassim Taleb’s “Green Lumber Problem”

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The Green Lumber Problem, outlined in Nassim Taleb’s upcoming book Antifragile, is essentially misunderstanding which facts are relevant vs those which are not in regards decision making under uncertainty.

From Nassim:

 

“In one of the rare noncharlatanic books in finance, descriptively called What I Learned Losing A Million Dollars, the protagonist makes a big discovery. He remarks that a fellow called Joe Siegel, the most active trader in a commodity called “green lumber” actually thought that it was lumber painted green (rather than freshly cut lumber, called green because it had not been dried). And he made a living, even a fortune trading the stuff! Meanwhile the narrator was into theories of what caused the price of commodities to move and went bust.

The fact is that predicting the orderflow in lumber and the price dynamics narrative had little to do with these details —not the same ting. Floor traders are selected in the most nonnarrative manner, just by evolution in the sense that nice arguments don’t make much difference.”

Here is a public discussion about the topic on his Facebook Page (Facebook account not required).

Penguin Book: Antifragile (New Book Cover)

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Just spotted Nassim Taleb’s upcoming book Antifragile on Penguin Books UK website. The website shows a different cover to the stacked boxes in the post below, and has a different subtitle “How to Live in a World We Don’t Understand” which would presumably be  for the UK market. Publish date appears to be 27th of November 2012.

Antifragile: How to Live in a World We Don’t Understand
http:// www. penguin. co. uk/ nf/ Book/ BookDisplay/ … .html

Synopsis

In his global bestseller The Black Swan, Nassim Taleb explained the existence of high impact rare events beyond the realms of normal expectations. In his new book, Antifragility, Taleb goes much further. He tells us how to live in a world that is unpredictable and chaotic, and how to thrive during moments of disaster. Antifragility is about loving randomness, uncertainty, opacity, adventure and disorder, and benefitting from a variety of shocks. It is a new word because it is a new concept.

Many of the greatest breakthroughs in human endeavour come from the trial and error that is part of antifragility. And some of the best systems we know of, including evolution, have antifragility at their heart. Medicine, economics, even politics, could all be improved by embracing it. Our failure to realize this has even led to many huge historical misunderstandings about religion and belief.

So, how can we take advantage of antifragility? Taleb ranges over ideas and real-life situations, from why debt brings fragility, to why if we lose nothing we will gain nothing, to show that chaos makes us human. The most successful of us, the most daring, relentless and creative will take advantage of this disorder and invent new, more powerful opportunities and advantages beyond our expectations.

Prologue for Antifragile: Things That Gain from Disorder

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Nassim has currently uploaded for free viewing the Prologue of his upcoming book Antifragile: Things That Gain from Disorder. 

Click here to check it out.

Antifragile joins the previous works of Nassim’s continued exploration of the concepts of risk, uncertainty, probability, and decision making (plus many others threads), all under the umbrella of how to live in a world we don’t understand. “It’s all the same book” he has said before. I appears he has turned his works into a trilogy of sorts The INCERTO (The Works on UNCERTAINTY: Antifragile, The Black Swan, Fooled by Randomness,The Bed of Procrustes), which a snippet about from the Prologue is below:

INCERTO, an investigation of luck, uncertainty, probability, human error, risk, and decision-making under opacity, expressed in the form of personal essay with autobiographical sections, parables, philosophical, historical, and scientific discussions in non-overlapping volumes that can be accessed in any order.

Antifragile cannot come soon enough!

EDIT: He is also currently allowing the viewing of Notes, Afterthoughts, and Bibliography, and also the Appendix I and Appendix II (these are draft versions and therefor “cannot be disseminated or quoted.” so these are linked to the originals and may be removed at any time (hint: save them quckly!)) 

NYT: Throw Out the Probability Models

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Nassim recently did a short opinion piece in the The New York Times Room for Debate area titled Throw Out the Probability Models (April 2012).

It covers his typical Black Swan message that we cannot predict these certain class of rare but consequential events and so we need to become robust to them rather then relying on forecasts. The economic models that we use to calculate the probability of these rare events needs to go out the window.

“What goes out of the window? The entire discipline of modern finance and portfolio theory (the theories named after Harry Markowitz, William Sharpe, Merton Miller), the model-based methods of Paul Samuelson, much of time series econometrics (which don’t appear to predict anything), along with papers and theories that are based on “optimization.” These bring fragility into the system.”

Click here to read full piece here together with a reader discussion taking place in the comments section.

[VIDEO] Woodrow Wilson School (Princeton) — Economic Recovery: Perils, Politics, and Possibilities

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Nassim gave this talk in April 2012 and if I am not mistaken it was the first official public introduction of the concept of Antifragile, however at the time Nassim had planned to call the book “Antifragility” and later changed it due to concerns from the publisher.

I love the introduction, asking the audience for the opposite of fragile. I have heard him do this a number of times when he first started introducing the idea, and everybody always says “robust”. The issue is now as the idea enters the common discourse he can no longer do this introduction. A good problem to have I guess.

[VIDEO] RSA: The Predictability of Unpredictability

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The Predictability of Unpredictability from The RSA on Vimeo.

Renowned academic and author Nassim Nicholas Taleb discusses his groundbreaking ideas and their relevance to the current economic crisis, national policy making and other topics with Rohan Silva, senior policy advisor to the Prime Minister.

Watch on YouTube | Audio Download | Video Download | Nassim’s Presentation (PDF) | Nassim Nicholas Taleb’s Biography on RSA

Deloitte Innovation Growth Track: Three Questions to Nassim Taleb

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At the The Deloitte Innovation Growth Track program in January 2011 employees were given the opportunity to ask Nassim Taleb some questions. The program in the Netherlands, covered eight sessions on different topics with speakers specialising in these themes.

1) ‘If Black Swans happen more today than we think, why is man so poorly adapted to rare and improbable events?’

2) ‘What has been the largest Golden Swan in 2010?’

3) ‘How can we assist out clients in identifying their own Black Swans?’

10 Questions for Nassim Taleb from TIME Magazine

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Michael Elliot interviews Nassim for TIME Magazine back in December 2010 for the release of his book The Bed of Procrustes.

Questions:

  1. You’re a trader and a very successful one, do you think the sensationalized stock-market programming offered by the likes of CNBC and others has affected investor behaviour and market efficiency? (Toby Whitby, Houston)
  2. You warned us about the financial crisis, and your prediction was right. Can you foresee any other crisis that will happen in the near future? (John Hughes, Woodinville, Wash)
  3. Black-swan events are generally extreme outliers. Is it possible to profit from these events? (Kumaraguru Nadaraja, Adelaide, Australia)
  4. Many people have said that specialisation is the key to human advancement, do you think that is true, or do you still feel there is a place in the world for the Renaissance man? (Cameron Reuben, Seattle)
  5. What problems are you most interested in right now? (Kenny Smith, Boston)

Evidently it was just 5 questions, nice work TIME at least you delivered half of what you said!