The anti-Taleb reviews Antifragile

[jdb]

Enjoyed both Black Swan and Antifragile. Taleb is one of my favorite contrarian thinkers, both economic and human relations. But both books suffer same problem-author's very interesting premises and analysis could be well explained in less than 100 pages, difficult in latest book to slog through another 326 pages plus glossary and additional notes. But good news in both books is that by time you get through first 100 pages you have gleaned essence of the premises. Especially liked his analysis of the opposite of post traumatic stress syndrome, how exposure to horrific incidents can actually strenthen some people. My experience agrees with this. Of course we all knew this from Nietzsche and the Roman Stoics. But good to read it again. Cheers.

[grok87]

Enjoyed both Black Swan and Anti-Fragility. Taleb is one of my favorite contrarian thinkers, both economic and human relations. But both books suffer same problem-author's very interesting premises and analysis could be well explained in less than 100 pages, difficult in latest book to slog through another 326 pages plus glossary and additional notes. But good news in both books is that by time you get through first 100 pages you have gleaned essence of the premises. Especially liked his analysis of the opposite of post traumatic stress syndrome, how exposure to horrific incidents can actually strenthen some people. My experience agrees with this. Of course we all knew this from Nietzsche and the Roman Stoics. But good to read it again. Cheers.

hi jdb and welcome to the forum,
agree he could use a better editor

[VictoriaF]

Enjoyed both Black Swan and Anti-Fragility. Taleb is one of my favorite contrarian thinkers, both economic and human relations. But both books suffer same problem-author's very interesting premises and analysis could be well explained in less than 100 pages, difficult in latest book to slog through another 326 pages plus glossary and additional notes. But good news in both books is that by time you get through first 100 pages you have gleaned essence of the premises. Especially liked his analysis of the opposite of post traumatic stress syndrome, how exposure to horrific incidents can actually strenthen some people. My experience agrees with this. Of course we all knew this from Nietzsche and the Roman Stoics. But good to read it again. Cheers.

jdb, welcome to the Forum!

I am just starting to read Antifragile. Taleb said that the book is six books in one, and so the last 326 pages must contain 3-4 sub-books? I am curious in which ways they are redundant. Are they offering the same message with different examples? Are they providing different perspectives on the same message?

Victoria

[mpt follower]

I've never been sure how Taleb's own investing philosophy differs from "I like to play long shots."

(I'm still trying, unsuccessfully, to come up with a wisecrack that would include the word irrefragable, which means irrefutable or indisputable. I ran across that word in Jack London's novels, he's always talking about "the irrefragable logic of the elements" and such).

Taleb is simply saying that no one knows anything, forecasts are useless, etc., and that you have to take that into account when investing. I think that Bogleheads have known that for a very long time and invest passively accordingly.

[grok87]

Enjoyed both Black Swan and Anti-Fragility. Taleb is one of my favorite contrarian thinkers, both economic and human relations. But both books suffer same problem-author's very interesting premises and analysis could be well explained in less than 100 pages, difficult in latest book to slog through another 326 pages plus glossary and additional notes. But good news in both books is that by time you get through first 100 pages you have gleaned essence of the premises. Especially liked his analysis of the opposite of post traumatic stress syndrome, how exposure to horrific incidents can actually strenthen some people. My experience agrees with this. Of course we all knew this from Nietzsche and the Roman Stoics. But good to read it again. Cheers.

jdb, welcome to the Forum!

I am just starting to read Antifragile. Taleb said that the book is six books in one, and so the last 326 pages must contain 3-4 sub-books? I am curious in which ways they are redundant. Are they offering the same message with different examples? Are they providing different perspectives on the same message?

Victoria

7 books actually

[jdb]

Hi Victoria. Thanks. Been reading the posts on this forum on regular basis for over 7 years and very helpful. In fairness to the author, this is probably a book which one should re-read different sections several times at leisure along with the Additional Notes. Your comment about it being several books in one then makes sense, since he does really cover lots of different territory. So probably should read different sections in seven different time frames, pretending to be a flaneur with large library. Probably best to read Additional Notes first, then chapters in reverse order. As flaneur in training probably best done in quiet of evening in library while sipping good Scotch. Will try that.

[VictoriaF]

Hi Victoria. Thanks. Been reading the posts on this forum on regular basis for over 7 years and very helpful. In fairness to the author, this is probably a book which one should re-read different sections several times at leisure. along with the additional notes. Your comment about it being several books on one then makes sense, since he does really cover lots of different territory. So probably should read different sections in seven different time frames, pretending to be a flaneur with large library. Will try that.

jdb,

It's a pleasure to meet a kindred spirit, a contrarian and a flâneur.

Victoria

[jdb]

Thanks Victoria, and hello to grok87. I am a contrarian, my goal is to become a flaneur with large library. Cheers.

[VictoriaF]

Thanks Victoria, and hello to grok87. I am a contrarian, my goal is to become a flaneur with large library. Cheers.

Three out of three ain't bad.

I will probably have to trade my library for becoming a flâneur.

Victoria

[jdb]

Hi Victoria. Thanks. Been reading the posts on this forum on regular basis for over 7 years and very helpful. In fairness to the author, this is probably a book which one should re-read different sections several times at leisure along with the Additional Notes. Your comment about it being several books in one then makes sense, since he does really cover lots of different territory. So probably should read different sections in seven different time frames, pretending to be a flaneur with large library. Probably best to read Additional Notes first, then chapters in reverse order. As flaneur in training probably best done in quiet of evening in library while sipping good Scotch. Will try that.

[protagonist]

I think he would say that the probabilities of these rare events (black swans) are unknowable. And that anyone who says they can calculate them is a charlatan (he often uses more colorful terms!) so basically you need to position yourself to benefit from them.

Not having read his book, this question may seem naive. But I would think that not only would the probability of black swans be unknowable, but also their nature and their effect (both amplitude and direction) would be unknowable. On the one hand, a tsunami could hit New York City tomorrow, or a terrorist could hit the White House, Congress the Supreme Court and the cyber-economy in one day. On the other hand, scientists might discover a cheap means of cold fusion tomorrow that would make fossil fuel dependence a thing of the past. (Though these are extreme and highly unlikely events, that is what a "black swan" is, no?)

Each of those hypothetical events would have dramatically different effects on the markets. How can one position one's self to benefit from them at the same time, and all other (unknowable) "black swans" in general? Superficially, it seems to just reinforce that there is a direct relationship between risk and reward. If you take big chances, you might get rich or you might get wiped out.

[zhiwiller]

We can't have enough of unique people who make us rethink what we thought we knew.

You've come to the wrong forum.

[protagonist]

I think Taleb's personal investments are something like 90% treasuries and 10% exotic venture capital things that probably will go bust but if they don't, can boom like crazy. Most individual investors probably don't have access to this type of speculative bets.

I have always assumed that anybody half-intelligent and creative enough to come up with crazy ideas, persistent enough to follow through despite consequences, and resilient enough to bounce back from each successive failure, given enough time, will ultimately become outrageously successful, whether this attitude is applied to finance, your love life, or really anything else. Invent enough crazy junk and fail each time, laugh at your detractors, live off of beans and a hot plate, and eventually you will come up with "Fulton's Folly", or a pet rock, or stick-em notes, or Where's Waldo, or Facebook. Apply that to romance and eventually you will find your dream lover. You just have to. Because rare events happen commonly. Most people just don't allow themselves enough chances before they hit.

Is that sort of what Taleb is saying?

[protagonist]

I will see Taleb tomorrow at his book signing in D.C. I will not have a chance to speak with him, but if I could ask him a single question it would not be about his investing. My question would be about the life of a flâneur and independent scholar.

Victoria

At age 20, 'flaneurs" seemed to me to be the coolest people in the universe who I had the most to learn from. At age 60, they often bore me to tears, compared with those who worked their asses off and actually produced or contributed something above words. Not only because their lives often seem superficially pleasing but devoid of substance, but also because words and "isms" that can be debated ad infinitum have less value to me, and I forget them often as quickly as I hear them. I'm not speaking of Taleb specifically...I know nothing about him or his life, other than what I read in this reference to him on Wikipedia: http://en.wikipedia.org/wiki/Fl%C3%A2ne ... .C3.A2neur .

[protagonist]

That said, THIS made tons of sense to me:

In The Black Swan, Taleb has made a strong and convincing point that anything can happen; and that no history, no models, no authorities can protect us from the Black Swans. The Black-Swan events are unpredictable by their definition, they have such low probabilities and such high impacts that the calculation of their risk is impossible. If risk can be calculated, it is not a Black Swan. And so many people asked a natural question, what can one do about the Black Swans?

Antifragile answers this question. A short answer is, "Do not focus on the Black-Swan risks, which are unknown. Focus on the target (e.g., on yourself), which is something you can improve.

That pretty much sums up how I have chosen to live my own life.

Another point about black swans is that outrageously rare events happen outrageously commonly, simply because so many things happen. If a quadrillion things happen tomorrow, there is a 50-50 chance that something with a quadrillion-to-one odds against it happening will happen tomorrow. Thus, predicting that you will win the $100 million dollar lottery with a given number at 100 million to one odds against is nuts. But predicting that somebody will win with some number is highly probable, so if it happens to be you, it does not mean that God must exist. If somebody has a dream that their brother will die and it happens the next day, despite what they think, it does not mean he/she is clairvoyant. Given all the people dreaming, and all the people dying, somebody in the world is highly likely to have a dream of somebody they know dying who subsequently dies at some point in the not-too-distant future. It just might be you, and it just might happen tomorrow.

[VictoriaF]

I will see Taleb tomorrow at his book signing in D.C. I will not have a chance to speak with him, but if I could ask him a single question it would not be about his investing. My question would be about the life of a flâneur and independent scholar.

Victoria

At age 20, 'flaneurs" seemed to me to be the coolest people in the universe who I had the most to learn from. At age 60, they often bore me to tears, compared with those who worked their asses off and actually produced or contributed something above words. Not only because their lives often seem superficially pleasing but devoid of substance, but also because words and "isms" that can be debated ad infinitum have less value to me, and I forget them often as quickly as I hear them. I'm not speaking of Taleb specifically...I know nothing about him or his life, other than what I read in this reference to him on Wikipedia: http://en.wikipedia.org/wiki/Fl%C3%A2ne ... .C3.A2neur .

You don't think that producing just words could be enough? Are written words "just words"? The characteristics you describe seem more applicable to pseudo-intellectuals than flâneurs. Here is Taleb's description of what he meant to be a flâneur:

To slowly distill my single idea, I wanted to become a flâneur, a professional meditator, sit in cafés, lounge, unglued to desks and organization structures, sleep as long as I needed, read voraciously, and not owe any explanation to anybody. I wanted to be left alone in order to build, small steps at a time, an entire system of thought based on my Black Swan idea.

In the midst of a rushed life full of mundane tasks, boring meetings, and maddening interruptions the prospect of reading, thinking and writing -- in cafés or elsewhere -- is very appealing. I wonder if Taleb considers himself a flâneur. (Probably not while he is on the book tour. He joked that his schedule is so tight that he understands how politicians lose their brain cells while campaigning.)

Victoria

[VictoriaF]

That said, THIS made tons of sense to me:

In The Black Swan, Taleb has made a strong and convincing point that anything can happen; and that no history, no models, no authorities can protect us from the Black Swans. The Black-Swan events are unpredictable by their definition, they have such low probabilities and such high impacts that the calculation of their risk is impossible. If risk can be calculated, it is not a Black Swan. And so many people asked a natural question, what can one do about the Black Swans?

Antifragile answers this question. A short answer is, "Do not focus on the Black-Swan risks, which are unknown. Focus on the target (e.g., on yourself), which is something you can improve.

That pretty much sums up how I have chosen to live my own life.

Another point about black swans is that outrageously rare events happen outrageously commonly, simply because so many things happen.

Black Swans are subjective. Taleb has an example of a turkey that was generously fed by its owner for a year. The turkey's trust of the owner grew with each meal. On Thanksgiving the turkey has experienced her first and only Black Swan, when she was dispatched for the holiday dinner. Clearly, this was not a Black Swan for the owner.

If a quadrillion things happen tomorrow, there is a 50-50 chance that something with a quadrillion-to-one odds against it happening will happen tomorrow. Thus, predicting that you will win the $100 million dollar lottery with a given number at 100 million to one odds against is nuts. But predicting that somebody will win with some number is highly probable, so if it happens to be you, it does not mean that God must exist.

Rare events are in fact happening all the time, but they are Black Swans for different subjects. For an individual, there are not that many true Black-Swan events, but each of them produces an immense impact.

If somebody has a dream that their brother will die and it happens the next day, despite what they think, it does not mean he/she is clairvoyant. Given all the people dreaming, and all the people dying, somebody in the world is highly likely to have a dream of somebody they know dying who subsequently dies at some point in the not-too-distant future. It just might be you, and it just might happen tomorrow.

The type of clairvoyance you describe is particularly prevalent in financial predictions. We "feel" that the markets will rise tomorrow, the markets rise (on one of these "tomorrows"), and our sense of the financial prowess grows.

Note that since the concept of the Black Swan has made it into the common lexicon, there is a tendency to trivialize it. I am trying to reserve it for genuinely rare, high-impact events.

Victoria

[grok87]

How can one position one's self to benefit from them at the same time, and all other (unknowable) "black swans" in general? Superficially, it seems to just reinforce that there is a direct relationship between risk and reward. If you take big chances, you might get rich or you might get wiped out.

Well it's a good question. Let's bring it back to investing for just a minute. The question is whether there is indeed "a direct relationship between risk and reward"- whether all risks are rewarded, or more precisely whether an investor should EXPECT to be rewarded for bearing them, i.e. whether it is rational to expect a risk premium. Let's look at a few examples:

1) Currency risk- It is generally thought that there is little to no foreign currency risk premium, at least for major currencies. In other words a US investor in say Japanese bonds should not expect compensation for the Japanese currency risk of these bonds. See this thread
viewtopic.php?t=69087

2) Corporate Bond risk: this is a trickier one. there may be compensation for the risk here. But since it is the same corporations who issue corporate bonds and equities the question is where to investors get better a better risk/reward tradeoff. i.e. should you own a company's stocks? its bonds? both? Along with others, I argue that it is better to take risk on the equity side but stick to treasuries/tips on the bond side. See this thread for example
viewtopic.php?t=66322

I could go on...

But the general point and one that Taleb makes is that all risks are not equally rewarded. Some risks are not worth taking. He argues that one can often apply a very simple heuristic (shortcut)- upside vs. downside. Risks that have little upside but lots of downside (like corporate and high yield bonds) should be avoided. Risks that have little downside but lots of upside should be embraced- I would argue that small cap value stocks and LEAPS (long term equity options) fit the bill here.
cheers,

[VictoriaF]

Let's bring it back to investing for just a minute. The question is whether there is indeed "a direct relationship between risk and reward"- whether all risks are rewarded, or more precisely whether an investor should EXPECT to be rewarded for bearing them, i.e. whether it is rational to expect a risk premium.
...
But the general point and one that Taleb makes is that all risks are not equally rewarded. Some risks are not worth taking.

Taleb also challenges another truism, that there is no free lunch. Economists and arm-chair economists have beaten this free lunch to death. Practitioners, on the other hand, are trained to spot free options. Even in this Forum, we note that I bonds come with a free option, but we don't dare to generalize it. A part of Taleb's greatness is that he sees the things lying in the plain view.

Victoria

[market timer]

If a quadrillion things happen tomorrow, there is a 50-50 chance that something with a quadrillion-to-one odds against it happening will happen tomorrow.

The true probability is not 50-50, but actually 1-e^-1 (approx 63.2%) that at least one event with quadrillion-to-one odds will happen--assuming a quadrillion things could happen, each with quadrillion-to-one odds.

http://en.wikipedia.org/wiki/Poisson_distribution

[VictoriaF]

If a quadrillion things happen tomorrow, there is a 50-50 chance that something with a quadrillion-to-one odds against it happening will happen tomorrow.

The true probability is not 50-50, but actually 1-e^-1 (approx 63.2%) that at least one event with quadrillion-to-one odds will happen--assuming a quadrillion things could happen, each with quadrillion-to-one odds.

http://en.wikipedia.org/wiki/Poisson_distribution

A general model for protagonist's example is the "birthday paradox." A naive view is that in order to find two people with the same birthday, one needs 366 people, and that 183 people would provide 50% chance of success. In reality, the 50% success rate is achieved with just 23 people, and 99% success with 57 people.

The key to the paradox is the difference between matching your birthday (a specific birthday) and matching any pair of birthdays.

Victoria

[protagonist]

If a quadrillion things happen tomorrow, there is a 50-50 chance that something with a quadrillion-to-one odds against it happening will happen tomorrow.

The true probability is not 50-50, but actually 1-e^-1 (approx 63.2%) that at least one event with quadrillion-to-one odds will happen--assuming a quadrillion things could happen, each with quadrillion-to-one odds.

http://en.wikipedia.org/wiki/Poisson_distribution

A general model for protagonist's example is the "birthday paradox." A naive view is that in order to find two people with the same birthday, one needs 366 people, and that 183 people would provide 50% chance of success. In reality, the 50% success rate is achieved with just 23 people, and 99% success with 57 people.

The key to the paradox is the difference between matching your birthday (a specific birthday) and matching any pair of birthdays.

Victoria

I knew somebody would call me on that one. I was just too lazy to do the research, and hoped everybody else would be as well (giggling). I should know enough by now not to underestimate this community. Overall point still stands.

[protagonist]

You don't think that producing just words could be enough? Are written words "just words"? The characteristics you describe seem more applicable to pseudo-intellectuals than flâneurs. Here is Taleb's description of what he meant to be a flâneur:

I'm not sure what entails being a "pseudo-intellectual", other than that it is a common insult used by "real intellectuals".

I don't think all words are useless. I was being a provocateur. I admit it. Those of you who read my junk here know I sometimes do that, as annoying as it is. And I never read Taleb...my first encounter with the name was via you guys, yesterday. So anything I say about him should be taken with a grain of salt.

Still, I have worked in and out of academia. I have known so many people who have dedicated their lives to reading and analyzing....Plato, Aristotle, Aquinus, Kant, Mill, Rousseau, Nietzsche, Marx, Sartre, Freud, yadayada. And others (probably the majority) who may have heard of the above and what they believe but never opened any of their books. If you ask me which group has a better grasp on life, the universe and everything, including how stuff works, and how to live and be happy and satisfied, I would be hard pressed to choose. You might say that the yield on investment in words is low. I learn as much from listening to surfers, musicians and carpenters as I do listening to philosophers, and a lot of times it's more fun.

"You've been with the professors and they've all liked your looks.
With great lawyers you have discussed lepers and crooks.
You've been through all of F. Scott Fitzgerald's books.
You're very well read It's well known.

But something is happening here,
And you don't know what it is.
Do you, Mister Jones ?"

- Ballad of a Thin Man, Bob Dylan.

[VictoriaF]

Still, I have worked in and out of academia. I have known so many people who have dedicated their lives to reading and analyzing....Plato, Aristotle, Aquinus, Kant, Mill, Rousseau, Nietzsche, Marx, Sartre, Freud, yadayada. And others (probably the majority) who may have heard of the above and what they believe but never opened any of their books. If you ask me which group has a better grasp on life, the universe and everything, including how stuff works, and how to live and be happy and satisfied, I would be hard pressed to choose. You might say that the yield on investment in words is low. I learn as much from listening to surfers, musicians and carpenters as I do listening to philosophers, and a lot of times it's more fun.

Taleb claims that he learned more from traders than from academics. Among other things he used to be an option market maker on the Chicago Mercantile Exchange where people were on the verge of strangling each other and then were amicably convening for lunch. His counterpart of Bob Dylan's Mister Jones is Dr. John.

Victoria

[hsv_climber]

Serious question to Taleb's defenders: have you guys actually learned anything new from his latest book?

I am currently in the middle of the "Antifragility". I don't have much to argue with him, since he writes about such trivial things that I knew about probably back in middle/high school. "Whatever does not kill you makes you stronger". Who seriously did not know that since middle/high school?

And to whoever mentioned I-bonds as "free lunch".... If you would've invested $10,000 in I-bonds on 01/2003 (~10 years ago), you'd have $15,300 today. The same $10,000 invested into Vanguard TBM would give you $16,839. I am not going to speculate about the future....

[Fallible]

Serious question to Taleb's defenders: have you guys actually learned anything new from his latest book?

I am currently in the middle of the "Antifragility". I don't have much to argue with him, since he writes about such trivial things that I knew about probably back in middle/high school. "Whatever does not kill you makes you stronger". Who seriously did not know that since middle/high school? ...

I first learned it reading Hemingway's A Farewell to Arms (1929) in high school: "The world breaks everyone and afterward many are strong at the broken places. But those that will not break it kills. It kills the very good and the very gentle and the very brave impartially. If you are none of these you can be sure it will kill you too but there will be no special hurry."

But I very much liked The Black Swan and I'll reserve judgment on Antifragile (if I can after reading this good thread) until I can read it (now on library wait list).

[SpartanlyPanly]

I like Talebs books.

Paradigm shifting to my life and made changes accordingly.

[market timer]

And to whoever mentioned I-bonds as "free lunch".... If you would've invested $10,000 in I-bonds on 01/2003 (~10 years ago), you'd have $15,300 today. The same $10,000 invested into Vanguard TBM would give you $16,839. I am not going to speculate about the future....

The problem with comparing redemption value of I bonds with market value of TBM is that the former does not rise as prevailing yields fall, while the latter does. The fixed rate on I bonds issued 1/1/2003 is 1.6%. They have 20 years remaining, so we can compare them to the closest securities on the market: 20-year TIPS. Yield on 20-year TIPS is currently -0.11%. Therefore, the yield-to-maturity on 1/1/2003 I bonds is 1.71% above the YTM of 20-year TIPS. The duration is close to 20 years on these bonds, so an apples-to-apples comparison with TBM (if one planned to hold I bonds to maturity, as one should given how attractive they are relative to bonds in the secondary market) would increase the redemption value by about 34% (20x1.71%), putting the fair value at $15,300x1.34, or about $20,500. This analysis ignores the option value and tax benefits of I bonds, which add to their value.

Taleb would probably be a fan of both EE bonds and I bonds, given these securities allow investors to retain a valuable redemption option that could come in handy if inflation differs widely from expectations in the coming years.

[hsv_climber]

And to whoever mentioned I-bonds as "free lunch"....

The problem with comparing redemption value of I bonds with market value of TBM is that the former does not rise as prevailing yields fall, while the latter does. The fixed rate on I bonds issued 1/1/2003 is 1.6%. They have 20 years remaining, so we can compare them to the closest securities on the market: 20-year TIPS. Yield on 20-year TIPS is currently -0.11%. Therefore, the yield-to-maturity on 1/1/2003 I bonds is 1.71% above the YTM of 20-year TIPS. The duration is close to 20 years on these bonds, so an apples-to-apples comparison with TBM (if one planned to hold I bonds to maturity, as one should given how attractive they are relative to bonds in the secondary market) would increase the redemption value by about 34% (20x1.71%), putting the fair value at $15,300x1.34, or about $20,500.

The question at hand is not either I-bonds are good or bad going into the future, but have they provided a "free lunch" in the past? I don't think so, since in the past they were outperformed by ALL other nominal & TIPS Treasury bonds with 10+ years of maturity issued at the same time.

This analysis ignores the option value and tax benefits of I bonds, which add to their value.

Then please don't ignore that I-bonds also have a huge tax negative, since holding them contradicts Mr. Bogle's principle of holding Bonds in tax-exempt account (although, TreasuryDirect is quasi tax-deferred); thus, forcing someone to hold stocks in tax-exempt. It has been shown that up to 2011 someone would be much better off buying 30-year TIPS in IRA than I-bonds.

I am not against I-bonds. I did buy the full allotments over the last few years, but so far they have not provided "free lunch" as been claimed in this thread. They have their positives & negatives.

[hsv_climber]

Taleb would probably be a fan of both EE bonds and I bonds, given these securities allow investors to retain a valuable redemption option that could come in handy if inflation differs widely from expectations in the coming years.

He clearly wrote in "Black Swan" that he'd hold 90% T-bills and the rest in very risky assets.

And in the recent interview Taleb said:

On investing
Taleb opts for stocks and doesn't invest in treasuries. While stocks are benefiting from Fed moves Taleb said he is afraid of hyperinflation and opts for stocks and real estate instead. He also owns some euros.
"I own stocks. Why? Because I don't trust treasury bonds. I happen to own stocks. I'd rather have a dividend than a coupon."

I really don't understand why should we have a cult of a person and then apply our personal investment believes, like I-bonds & EE-bonds, to this guy; although, he has clearly stated in the past that he has not invested and don't plan to invest into these assets?

[market timer]

He clearly wrote in "Black Swan" that he'd hold 90% T-bills and the rest in very risky assets.

Not sure what his net worth is, but my guess is that the $20K/year allotment of savings bonds is not worth his time. For middle class people, $20K/year is meaningful and these bonds offer the sort of free option and antifragility that Taleb espouses.

[grok87]

He clearly wrote in "Black Swan" that he'd hold 90% T-bills and the rest in very risky assets.

Not sure what his net worth is, but my guess is that the $20K/year allotment of savings bonds is not worth his time. For middle class people, $20K/year is meaningful and these bonds offer the sort of free option and antifragility that Taleb espouses.

+1

[protagonist]

Such extreme reactions!! Y'all got me wondering about this Taleb guy.
I read the following review of "Black Swan" on Amazon. It seemed fairly balanced and thoughtful. I imagine it will generate some reactions.

Chapters 15 - 17 are excellent. The remainder is OK., July 30, 2007
By Gaetan Lion - See all my reviews
(TOP 1000 REVIEWER) (REAL NAME)
This review is from: The Black Swan: Second Edition: The Impact of the Highly Improbable: With a new section: "On Robustness and Fragility" (Hardcover)
Starting with the good (chapters 15 - 17), within chapter 15 Taleb explains where the Bell curve works and where it does not. The Bell curve captures well variables that don't deviate much from the mean. Otherwise, it does not work. Taleb suggests we often fool ourselves in believing that correlation, regression coefficients, or standard deviation convey much information. This is because those coefficients are unstable (and can flip sign when possible) depending on the time selected. This is because the underlying variables are often not stationary enough for these coefficients to be stable.

Chapter 16 is excellent as an introduction to Mandelbrot's fractal geometry as an alternative to Gaussian based investment theory. He supports well that these mathematical tools do capture randomness (of non-stationary variables) far better than the Normal distribution. However, he admits that Mandelbrotian models are not predictive. When looking at the same data set, he and numerous colleagues each came up with different underlying parameters to build fractal-like models. And a small difference in such parameters makes a huge difference in outcome. That's why you will not hear much of fractal geometry within the quantitative financial community. Nevertheless, this is a fascinating subject that deserves further exploration. For this purpose, I recommend Mandelbrot's The Misbehavior of Markets

Within Chapter 17, Taleb further elaborates on the flaws of the Normal distribution. He underlines that half of the return of the stock market over the past 50 years was associated with just 10 days with the greatest daily change. This is an example where stock returns have outliers of such magnitude that using the Normal distribution is not appropriate. Taleb describes the run-ins he experienced with the living legends of modern finance including Myron Scholes and Robert Merton due to his rejection of the Normal distribution assumption that underlies all their models.

The remainder of the book is not nearly as good. Hundreds of pages can be summed up in just stating that we can't predict rare events. Taleb goes way overboard in attributing everything to luck. He thinks MicroSoft beat out Apple just due to luck. Taleb does not consider that MicroSoft open system allowed it to mushroom while Apple locked itself into a proprietary corner. Also, according to Taleb both the rise and fall of Rome were due entirely to luck. But, Rome was best at developing military strategy and transportation networks. However, it eventually suffered from imperial overstretch. Explanations are not always narrative fallacies as Taleb believes. They often beat out ignorance.

When it comes to advice, Taleb's recommendation is interesting. It consists in an asset allocation of 85% risk free investments (T-bill) and the 15% remainder into buying way out of the money Calls and Puts. By doing so, he positions his portfolio to capture the occasional mispriced Black Swans.

This book is somewhat uneven in quality and is not nearly as good as his first book: Fooled by Randomness Revision (Not Available in US): The Hidden Role of Chance in the Markets and Life that has become a classic on Wall Street. Otherwise, it still is an interesting reading.

If you find the subject of this book intriguing, let me suggest a few other books that are more rewarding. Scott Plous'sThe Psychology of Judgment and Decision Making explores the flaws in human judgments far more thoroughly and clearly than Taleb in `The Black Swan.' Perry Mehrling's Fischer Black and the Revolutionary Idea of Finance is also an excellent book. Ideally, that may be who Taleb would have liked to become. Fischer Black was brilliant and as skeptical as Taleb regarding much of the body of economics and finance. Yet, he left a great legacy of elegant models that people still use extensively including the famous Black-Scholes option model. Yes those models were often based on Taleb's dreaded Normal distribution. But, with minor modifications those models have remained valuable. Another recommendation is William Poundstone's Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street that describes the career of a bright MIT mathematician, Ed Thorp. The latter showed how to successfully deal with uncertainty in gambling and investing. Even Taleb recognized Thorp's unique expertise within `Black Swan.

[Valuethinker]

Serious question to Taleb's defenders: have you guys actually learned anything new from his latest book?

I am currently in the middle of the "Antifragility". I don't have much to argue with him, since he writes about such trivial things that I knew about probably back in middle/high school. "Whatever does not kill you makes you stronger". Who seriously did not know that since middle/high school?

....

If Taleb actually says that (actually Nietzche says it) then it also happens NOT to be true.

I can name any number of people I know who suffered grievous physical or psychological harm-- sexual abuse, violence, accidents, bankruptcy, Holocaust survivor, bomb attack survivor etc.

They are not stronger for it, but permanently damaged either mentally or physically, or both. Spent their lives trying to adjust.

It's not a given that surviving makes you a better person. The world is full of walking wounded.

[Valuethinker]

But good news in both books is that by time you get through first 100 pages you have gleaned essence of the premises. Especially liked his analysis of the opposite of post traumatic stress syndrome, how exposure to horrific incidents can actually strenthen some people. My experience agrees with this. Of course we all knew this from Nietzsche and the Roman Stoics. But good to read it again. Cheers.

I am not sure if we 'knew' this because Nietzsche and the stoics said it. Nietzsche was fairly messed up, Roman Stoics are open to the charge of hypocrisy.

What does the data say? Something like George Valliant's 'Adaptation to Life'? Or study of Concentration Camp survivors?

Well it says that some people, some of the time, can get over truly horrific life experiences (you can't get over permanent physical damage of course, in a physical sense).

I can think of Holocaust survivors who followed the 'nice' model, and ones who did not-- made their childrens' lives hell. Same for victims of childhood sexual abuse, violence, rape etc.

Taleb is at times mindlessly contrarian. YES there is a school of thought, documented, that suggests that the best response to trauma is often to repress it. Most war veterans do exactly that. But think of Karl Marlantes who has spent decades trying to deal with it (and has finally produced 2 books about his experiences).

[Valuethinker]

Oh sure, Matt Ridley. Mr. Chairman of Northern Rock when it became the first British bank to have a run in 100 years because of Ridley's management and was subsequently bailed out by the Brits with 30 billion pounds. None of which seems to have dimmed Ridley's abiding faith in the efficiency of markets.

The markets were quite efficient at pointing out that Mr. Ridley's bank was insolvent and that he needed to be removed as chairman.

Speaking as a UK taxpayer his subsequent book is a ridiculous apologia 'I can't talk about it, legal you know dear boy'.

He was given that job because his grandfather had that job. So much for free markets. Let the CEO run rampant and ruin the business with a flawed strategy.

He functioned in effect as what the Soviets used to call a 'Useful Idiot' who justified the Party's policies whilst being 'independent'.

He writes books about how everything is going to be OK, don't worry about climate change, nuclear war, oil supply etc.-- God (or the God of markets and technology) will provide. No actual prescriptions, policies, no need to take action-- the market will provide. All hail the market. Just let biotechnology run loose without regulation and all shall be well, dear boy, all shall be well.

Thanks Lord Ridley.


Then he goes and loses £30bn on his watch with a 'brilliant' business model that 'no one else in the City understands'. Not 200 years of British mortgage banking.

And here we are with an economy 5% smaller than it was in 2007, the economy teetering on the bring of a 'triple dip' downward in GDP, and a bailout to the banks running over £100bn (ie c. 10% of GDP).

Matt Ridley is useful ideological top cover for the people who have run the British economy into the ground, and escaped largely without penalty or serious censure.

[hsv_climber]

Not sure what his net worth is, but my guess is that the $20K/year allotment of savings bonds is not worth his time. For middle class people, $20K/year is meaningful and these bonds offer the sort of free option and antifragility that Taleb espouses.

Imagine "Fat Nassim" and "Dr.Timer". Both are 50% stocks / 50% bonds. "Fat Nassim" is 50% in T-bills, but "Dr. Timer" is 50% in I-bonds.

Who is more antifragile during Flash Crash of 2010 and market crash of 1987? If you know the story behind Taleb's success then you know that "Fat Nassim" would put his 50% of T-bills into stocks or other risky assets on those crash days, so crashes made him richer; thus, stronger and "antifragile".
OTOH, "Dr.Timer" won't be able to move the funds from TreasuryDirect into his brokerage account fast enough to benefit from it. So, while he did not sell, crashes did not make him richer or stronger, he stayed the same. That makes him resilient or robust. But not antifragile.

Thus, by Taleb's definitions, I-bonds offer robustness, not antifragility.

[gd]

I can name any number of people I know who suffered grievous physical or psychological harm-- sexual abuse, violence, accidents, bankruptcy, Holocaust survivor, bomb attack survivor etc.

They are not stronger for it, but permanently damaged either mentally or physically, or both. Spent their lives trying to adjust.

It's not a given that surviving makes you a better person. The world is full of walking wounded.

I'm only on page 70, but he's already bloviated thoroughly on this point. It's the species that is strengthened, not the individual. I was struck by Table 1, which is a 4+ page list (still in the prologue!) of "fragile/robust/antifragile" comparisons-- this is not his discovery, as anyone attentive in high school biology easily knows. He's just chosen to write a book focusing and expounding on it. And bloviate. Lots and lots of bloviation...

[magneto]

Patrick Hosking interviewed Taleb in The Times (UK) 01DE12.

Taleb indicated his portfolio includes let residential property in the US, land in Lebanon, REITs, and a sprinkling of hedge funds. He also owns gold, but has been running down his holdings recently after doubling his money, also purchases out of the money options to protect against a burst of US hyperinflation and a blow up in interest rates, chances of which he rates at less than 5% (don't understand these last instruments).

He says he would be happy if over the next 20 years he lost only 5% of his principal in real terms.

[VictoriaF]

If Taleb actually says that (actually Nietzche says it) then it also happens NOT to be true.

I can name any number of people I know who suffered grievous physical or psychological harm-- sexual abuse, violence, accidents, bankruptcy, Holocaust survivor, bomb attack survivor etc.

They are not stronger for it, but permanently damaged either mentally or physically, or both. Spent their lives trying to adjust.

It's not a given that surviving makes you a better person. The world is full of walking wounded.

I have not read the book yet. Based on Taleb's presentation, antifragility is an ability to improve, to gain from small shocks. He is not endorsing significant destructive shocks. He is in favor of minor stressors that harden one against potentially devastating stressors. He gave an example of mithridatism.

I don't know if Taleb writes about it, but I have taken some cognitive training where a recommendation was to disrupt one's habitual behaviors, e.g., take a different route to a familiar destination, brush teeth with the other hand, write with non-dominant hand, write upside down, etc.

Victoria

[protagonist]

I have taken some cognitive training where a recommendation was to disrupt one's habitual behaviors, e.g., take a different route to a familiar destination, brush teeth with the other hand, write with non-dominant hand, write upside down, etc.

Victoria

I haven't read Taleb, only the reviews and comments above. But doesn't he focus on the effect of the "black swans", not the small shocks? Or is the point that training yourself with dealing with small shocks makes you stronger, more "anti-fragile", more prepared when the big ones come along, sort of like a form of immunization? More like "that which does not present as more than a slight annoyance makes you stronger", than "that which does not kill you makes you stronger"?

Learning from years of experience not to get over-emotional about daily dips in the market over years probably did, in fact, make me more "antifragile" (if that is the right word) when my stocks dropped over 50% a few years ago. I'm not sure that brushing my teeth with my left hand would help me cope any better with concentration camp life.

[hsv_climber]

I have not read the book yet. Based on Taleb's presentation, antifragility is an ability to improve, to gain from small shocks. He is not endorsing significant destructive shocks. He is in favor of minor stressors that harden one against potentially devastating stressors. He gave an example of mithridatism.

In the book he throws everything at the reader with the hope that something will stick. His Mithridatism example (in the book) immediately follows with the fact that the person who tried to protect herself with that (i.e. smaller doses of poison) got killed by a sword.

[VictoriaF]

I have taken some cognitive training where a recommendation was to disrupt one's habitual behaviors, e.g., take a different route to a familiar destination, brush teeth with the other hand, write with non-dominant hand, write upside down, etc.

Victoria

I haven't read Taleb, only the reviews and comments above. But doesn't he focus on the effect of the "black swans", not the small shocks? Or is the point that training yourself with dealing with small shocks makes you stronger, more "anti-fragile", more prepared when the big ones come along, sort of like a form of immunization? More like "that which does not present as more than a slight annoyance makes you stronger", than "that which does not kill you makes you stronger"?

Black Swans happen, and you cannot do anything about them. That is, you cannot do anything about the Black Swans. You can do something about yourself; you can make yourself antifragile. You cannot possibly know which Black Swan will land in your backyard, but if you are antifragile you have a better chance of dealing with her.

Learning from years of experience not to get over-emotional about daily dips in the market over years probably did, in fact, make me more "antifragile" (if that is the right word) when my stocks dropped over 50% a few years ago.

That's a good example, provided that not only you don't become over-emotional but you also don't deviate from your IPS.

I'm not sure that brushing my teeth with my left hand would help me cope any better with concentration camp life.

You would not know unless you have tried it.

Victoria

[Levett]

We all try to find ways to make do.

I get the impression that for some whatever Taleb says (or writes) becomes a Rorschach test.

I happen to share the view of a piece published in the weekend Wall Street Journal: "The Power of Negative Thinking."

A famous writer observed: "Human life is everywhere a state in which much is to be endured, and little to be enjoyed."

Enduring makes you both stronger and more apt to appreciate enjoyment.

Another famous poet wrote: "death is the mother of beauty."

What did he mean? Everything is fragile and comes to an end, and that's why it's valuable.

Whatever.

Taleb has found his way back to the best of philosophy.

Lev

[hsv_climber]

I haven't read Taleb, only the reviews and comments above. But doesn't he focus on the effect of the "black swans", not the small shocks? Or is the point that training yourself with dealing with small shocks makes you stronger, more "anti-fragile", more prepared when the big ones come along, sort of like a form of immunization? More like "that which does not present as more than a slight annoyance makes you stronger", than "that which does not kill you makes you stronger"?

The further I am reading into the book, the less it makes a consistent point. Basically the book is about Taleb throwing everything at the reader with the hope that something will stick. His examples are about anything and everything and are not consistent with each other. That is why different people will provide different reviews on this book, but BOTH can be right, since everyone can find something that he/she will like or dislike.
But what that means is that it is possible to find examples in the book to answer "Yes" and "No" to your questions.

[hsv_climber]

Learning from years of experience not to get over-emotional about daily dips in the market over years probably did, in fact, make me more "antifragile" (if that is the right word) when my stocks dropped over 50% a few years ago.

That's a good example, provided that not only you don't become over-emotional but you also don't deviate from your IPS.

That is NOT a correct example of anti-fragility by Taleb's definition. This is an example of "resilience" / "robustness".

Fragile person is supposed to sell everything, Robust person is supposed to hold (or not to deviate from IPS), but Antifragile is supposed to make $$$$$ and benefit from the crisis.

[protagonist]

Black Swans happen, and you cannot do anything about them. That is, you cannot do anything about the Black Swans. You can do something about yourself; you can make yourself antifragile. You cannot possibly know which Black Swan will land in your backyard, but if you are antifragile you have a better chance of dealing with her.

That sounds like common sense. I love the fact that you portray an extreme unexpected deviation from the norm as female.

I'm not sure that brushing my teeth with my left hand would help me cope any better with concentration camp life.

You would not know unless you have tried it.

Victoria

I'll do it right now. I just ate.

[VictoriaF]

You cannot possibly know which Black Swan will land in your backyard, but if you are antifragile you have a better chance of dealing with her.

That sounds like common sense. I love the fact that you portray an extreme unexpected deviation from the norm as female.

It takes one to know one.

Victoria

[protagonist]

Learning from years of experience not to get over-emotional about daily dips in the market over years probably did, in fact, make me more "antifragile" (if that is the right word) when my stocks dropped over 50% a few years ago.

That's a good example, provided that not only you don't become over-emotional but you also don't deviate from your IPS.

That is NOT a correct example of anti-fragility by Taleb's definition. This is an example of "resilience" / "robustness".

Fragile person is supposed to sell everything, Robust person is supposed to hold (or not to deviate from IPS), but Antifragile is supposed to make $$$$$ and benefit from the crisis.

I guess I am robust, then. At least that is something. I wish I was antifragile and made money.

[random user 320]

Taleb's talents seem to be a) the ability to repackage and popularize undergraduate stats concepts with pretense of originality; b) self-promotion.

I'd agree with this, though he does choose rather worthy concepts to focus on. FBR was an eye-opener for me; each subsequent book was increasingly more tedious due to self-congratulatory fluff and maddening contradictions. The topics are excellent, but the books are terrible. I decided not to buy AF after reading a free online excerpt in which Taleb brutally violates the poor innocent words "convex" and "concave" to describe the undergraduate concepts of superlinear and sublinear. These days the only book of his I can still enjoy is "The Bed of Procrustes."

Taleb and Felix Dennis have shown me the way: after I accidentally strike it rich one day, I'll repair to a lazy cafe somewhere and become an obnoxiously superior philosopher.