PBS NewsHour Interviews Nassim Taleb on Hedge Funds & Black Swans

Paul Solman explains “hedge funds” and why “Black Swan” events make it harder than might be expected to reduce investment risk (October, 2006).

“Nassim: The difference between Hedge Funds, and Mutual Funds, is that Mutual Funds take your money and they have a lot of constraints on what they can do for you. A Hedge Fund has usually more freedom, to invest, to make bets, to gamble, to do whatever you want.

Paul: OK lets take it back to 2000, I have a lot of finance professor friends, so of whom would presumably go on my board. People know me on television as a financial somethingerather. Do you think I could have actually started a Hedge Fund?

Nassim: You would have billions under management currently.

Paul: I would have billions??

Nassim: Yes, because all you would had to do was go to university and pickup a couple professors ok, hire a couple risk managers–usually they have a foreign accent, you know they’re quants…

Paul: Quants??

Nassim: Quants, like me, my background is a quant.

Paul: [to the camera] Quants, as in quantitative types, so called financial engineers like Taleb, himself a mathematician, a Hedge Fund owner, and author of a steeply sceptical book on investing called Fooled by Randomness.

Nassim: All you had to do is provide these steady returns, or, the illusion of low-risk returns.”