The Taleb Asness 'debate' in the light of Bogleheads philosophy

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The Taleb Asness 'debate' in the light of Bogleheads philosophy

Post by steve321 » Fri May 22, 2020 10:48 am

In the last couple of days there's been a Twitter exchange between Taleb and Asness covered in the media. Taleb seems to have thrashed Asness (and in tweets this morning Fama and MPT too). So does this put into question the Bogleheads philosphy of risk management? Can someone explain in simple terms how can it be possible for both Taleb's analysis and Bogleheads philosphy to be true?
Last edited by steve321 on Fri May 22, 2020 2:42 pm, edited 1 time in total.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by VictoriaF » Fri May 22, 2020 10:53 am

Neither Asness nor Taleb is a Boglehead.

The Bogleheads philosophy targets investors, not fund managers. The main principle of this philosophy is to invest in low-cost, broad-based, index funds.

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by RadAudit » Fri May 22, 2020 10:56 am

steve321 wrote:
Fri May 22, 2020 10:48 am
In the last couple of days there's been a Twitter exchange between Taleb and Asness covered in the media. Taleb seems to have thrashed Asness (and in tweets this morning Fama and MPT too). So does this put into question the Bogleheads philosphy of risk management?
What specifically did this twitter storm have to say?
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by steve321 » Fri May 22, 2020 10:56 am

VictoriaF wrote:
Fri May 22, 2020 10:53 am
Neither Asness nor Taleb is a Boglehead.

The Bogleheads philosophy targets investors, not fund managers. The main principle of this philosophy is to invest in low-cost, broad-based, index funds.

Victoria
Asness endorses most ideas of Fama and MPT and is thus close to Bogleheads philosphy. By clobbering him Taleb has shown concepts like MPT, the idea of efficient markets etc to be intellectually dishonest. These concepts are at teh heart of Bogleheads philosphy. That's what I understand at present. Can someone help to see more clearly in this conundrum?
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by steve321 » Fri May 22, 2020 10:57 am

RadAudit wrote:
Fri May 22, 2020 10:56 am
steve321 wrote:
Fri May 22, 2020 10:48 am
In the last couple of days there's been a Twitter exchange between Taleb and Asness covered in the media. Taleb seems to have thrashed Asness (and in tweets this morning Fama and MPT too). So does this put into question the Bogleheads philosphy of risk management?
What specifically did this twitter storm have to say?
see e.g. todays tweets here: https://twitter.com/nntaleb
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by dziuniek » Fri May 22, 2020 11:03 am

Taleb called Asness 'disgusting "AQR" luantic' ...

I've yet to see the other side of the exchange but that's nuts. Already losing some respect here. Seems like COVID is driving even the smartest folks nuts. :twisted:

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by vineviz » Fri May 22, 2020 11:04 am

steve321 wrote:
Fri May 22, 2020 10:48 am
Can someone explain in simple terms how can it be possible for both Taleb's analysis and Bogleheads philosphy to be true?
It’s not possible, and the weak link is Taleb’s grip on reality.

I can’t remember who said this, but it rings true: Taleb is that guy who was once kind-of right about something and now acts as if he’s the only one who knows everything about anything.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by oldfort » Fri May 22, 2020 11:12 am

steve321 wrote:
Fri May 22, 2020 10:56 am
VictoriaF wrote:
Fri May 22, 2020 10:53 am
Neither Asness nor Taleb is a Boglehead.

The Bogleheads philosophy targets investors, not fund managers. The main principle of this philosophy is to invest in low-cost, broad-based, index funds.

Victoria
Asness endorses most ideas of Fama and MPT and is thus close to Bogleheads philosphy. By clobbering him Taleb has shown concepts like MPT, the idea of efficient markets etc to be intellectually dishonest. These concepts are at teh heart of Bogleheads philosphy. That's what I understand at present. Can someone help to see more clearly in this conundrum?
Assess is not anywhere close to being a boglehead. Bogleheads believe in owning the entire market. AQR exists to pick which stocks will beat the market or underperform the market.

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by steve321 » Fri May 22, 2020 11:17 am

oldfort wrote:
Fri May 22, 2020 11:12 am
steve321 wrote:
Fri May 22, 2020 10:56 am
VictoriaF wrote:
Fri May 22, 2020 10:53 am
Neither Asness nor Taleb is a Boglehead.

The Bogleheads philosophy targets investors, not fund managers. The main principle of this philosophy is to invest in low-cost, broad-based, index funds.

Victoria
Asness endorses most ideas of Fama and MPT and is thus close to Bogleheads philosphy. By clobbering him Taleb has shown concepts like MPT, the idea of efficient markets etc to be intellectually dishonest. These concepts are at teh heart of Bogleheads philosphy. That's what I understand at present. Can someone help to see more clearly in this conundrum?
Assess is not anywhere close to being a boglehead. Bogleheads believe in owning the entire market. AQR exists to pick which stocks will beat the market or underperform the market.
all right then, but besides clobbering Asness he also wrote this about Fama and MPT
he great Mandelbrot despised Fama whom he found both clueless & dishonorable.

Fama was a French major & M supervised his thesis; they applied the Levy-Stable Distribution for markets (mistake since it's a limit not met preasymtotically).

Then Fama turned on M to use MPT.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by targetconfusion » Fri May 22, 2020 11:24 am

dziuniek wrote:
Fri May 22, 2020 11:03 am
Taleb called Asness 'disgusting "AQR" luantic' ...
I've yet to see the other side of the exchange but that's nuts. Already losing some respect here. Seems like COVID is driving even the smartest folks nuts. :twisted:
Taleb has never really been a diplomat and this isn't new twitter behavior for him. But his behavior aside, which wasn't really the focus of the original question, the way I oversimplify it to myself is that Taleb, basically, believes the probability of extreme events ("tail risk") to be higher than most Bogleheads might. BHs (and I'm in the this camp, lest it sound pejorative) basically believe the future will look roughly like the past. Not that every year will be the same, but that they'll kind of be sampling from the same distribution of outcomes. Whereas, Taleb thinks Very Bad Things and Very Good Things will happen more often and be bigger.

It's a philosophical decision with portfolio implications. If you knew the future would be more Talebian, you could rig a portfolio to tolerate that future better than the standard Boglehead, low-cost, N-funder (e.g., by buying out-of-the-money puts). But if it turns out Boglesque, the hedges are a waste of money.

As others observe, Fama/MPT/AQR/Larry Swedroe aren't equivalent to "Bogleheads." But to my amateur understanding Taleb's big philosophical divergence once you clear away all the pottymouth tweeting and who fell out with whose PhD advisor is beliefs about tail risk.

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by steve321 » Fri May 22, 2020 11:28 am

VictoriaF wrote:
Fri May 22, 2020 10:53 am
Neither Asness nor Taleb is a Boglehead.

The Bogleheads philosophy targets investors, not fund managers. The main principle of this philosophy is to invest in low-cost, broad-based, index funds.

Victoria
I mean I remember you writing that you know Taleb. Have you asked him about Bogleheads philosphy?
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by steve321 » Fri May 22, 2020 11:33 am

targetconfusion wrote:
Fri May 22, 2020 11:24 am
dziuniek wrote:
Fri May 22, 2020 11:03 am
Taleb called Asness 'disgusting "AQR" luantic' ...
I've yet to see the other side of the exchange but that's nuts. Already losing some respect here. Seems like COVID is driving even the smartest folks nuts. :twisted:
Taleb has never really been a diplomat and this isn't new twitter behavior for him. But his behavior aside, which wasn't really the focus of the original question, the way I oversimplify it to myself is that Taleb, basically, believes the probability of extreme events ("tail risk") to be higher than most Bogleheads might. BHs (and I'm in the this camp, lest it sound pejorative) basically believe the future will look roughly like the past. Not that every year will be the same, but that they'll kind of be sampling from the same distribution of outcomes. Whereas, Taleb thinks Very Bad Things and Very Good Things will happen more often and be bigger.

It's a philosophical decision with portfolio implications. If you knew the future would be more Talebian, you could rig a portfolio to tolerate that future better than the standard Boglehead, low-cost, N-funder (e.g., by buying out-of-the-money puts). But if it turns out Boglesque, the hedges are a waste of money.

As others observe, Fama/MPT/AQR/Larry Swedroe aren't equivalent to "Bogleheads." But to my amateur understanding Taleb's big philosophical divergence once you clear away all the pottymouth tweeting and who fell out with whose PhD advisor is beliefs about tail risk.
Thanks! One last question concerning this point
Taleb, basically, believes the probability of extreme events ("tail risk") to be higher than most Bogleheads might. BHs (and I'm in the this camp, lest it sound pejorative) basically believe the future will look roughly like the past. Not that every year will be the same, but that they'll kind of be sampling from the same distribution of outcomes. Whereas, Taleb thinks Very Bad Things and Very Good Things will happen more often and be bigger.
How does this compare to Ray Dalio's understanding of the market and seeing events just as 'another one of those'? Does it mean that Dalio sees more regularity and predictability (through the study of history), whereas Taleb thinks that events impossible to predict happen? But then, Dalio did predict 2008.
I am asking this as I am trying to make a broad mental map of these different views to see how and why they differ.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by SteadyOne » Fri May 22, 2020 11:49 am

steve321 wrote:
Fri May 22, 2020 10:48 am
In the last couple of days there's been a Twitter exchange between Taleb and Asness covered in the media. Taleb seems to have thrashed Asness (and in tweets this morning Fama and MPT too). So does this put into question the Bogleheads philosphy of risk management? Can someone explain in simple terms how can it be possible for both Taleb's analysis and Bogleheads philosphy to be true?
I recall from Taleb’s books statements that there is not enough data points in market history to apply meaningful probability distribution for modeling it, so statistics is basically useless. I do not have a quote, but it was something like one needs ten thousand years of market history to start even applying concepts of standard error, etc. We have only 100 years or so and therefore there is not enough data points, and applying “second rate physics” (his words) to market modeling is doomed for failure. Therefore rare events cannot be predicted with models and we should plan for those. It’s not like he is saying that statistics is useless in principle for markets, but that available data to model those is so short that meaningful statistical models are not possible. This was my understanding of his arguments.

He is actually using ‘thousands of years’ argument repeatedly in his books. For example, regarding a janitor who wins lottery and becomes a millionaire vs. dentist who keeps doing his thing. If both had lived for thousands of years, said janitor would have eventually spent all of the lottery money and reverted to janitor, while dentist continued to make decent living and eventually in total would have overcome this lottery winner. An interesting point.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by bgf » Fri May 22, 2020 11:53 am

steve321 wrote:
Fri May 22, 2020 11:33 am
targetconfusion wrote:
Fri May 22, 2020 11:24 am
dziuniek wrote:
Fri May 22, 2020 11:03 am
Taleb called Asness 'disgusting "AQR" luantic' ...
I've yet to see the other side of the exchange but that's nuts. Already losing some respect here. Seems like COVID is driving even the smartest folks nuts. :twisted:
Taleb has never really been a diplomat and this isn't new twitter behavior for him. But his behavior aside, which wasn't really the focus of the original question, the way I oversimplify it to myself is that Taleb, basically, believes the probability of extreme events ("tail risk") to be higher than most Bogleheads might. BHs (and I'm in the this camp, lest it sound pejorative) basically believe the future will look roughly like the past. Not that every year will be the same, but that they'll kind of be sampling from the same distribution of outcomes. Whereas, Taleb thinks Very Bad Things and Very Good Things will happen more often and be bigger.

It's a philosophical decision with portfolio implications. If you knew the future would be more Talebian, you could rig a portfolio to tolerate that future better than the standard Boglehead, low-cost, N-funder (e.g., by buying out-of-the-money puts). But if it turns out Boglesque, the hedges are a waste of money.

As others observe, Fama/MPT/AQR/Larry Swedroe aren't equivalent to "Bogleheads." But to my amateur understanding Taleb's big philosophical divergence once you clear away all the pottymouth tweeting and who fell out with whose PhD advisor is beliefs about tail risk.
Thanks! One last question concerning this point
Taleb, basically, believes the probability of extreme events ("tail risk") to be higher than most Bogleheads might. BHs (and I'm in the this camp, lest it sound pejorative) basically believe the future will look roughly like the past. Not that every year will be the same, but that they'll kind of be sampling from the same distribution of outcomes. Whereas, Taleb thinks Very Bad Things and Very Good Things will happen more often and be bigger.
How does this compare to Ray Dalio's understanding of the market and seeing events just as 'another one of those'? Does it mean that Dalio sees more regularity and predictability (through the study of history), whereas Taleb thinks that events impossible to predict happen? But then, Dalio did predict 2008.
I am asking this as I am trying to make a broad mental map of these different views to see how and why they differ.
I'd recommend you read popular works by Taleb, Thaler, Malkiel, Mandelbrot, Lo, and Ed Thorp. Also works on market history like When Genius Failed and Great Crash of 1929.

Anyway, others here clearly have formal educations in economics and finance. You can immediately tell which ones do. I, unfortunately, am not one of them, but my view of the market is taken primarily from Thaler, Mandelbrot, and Thorp. I invest in broad passive index funds NOT because I am a firm believer in EMH or any other model or theory, but simply because all my personal experience and learned experience supports the conclusion that the stock market is an incredibly difficult "game" to win. The market is the house. I'm just an average joe; when I go to the casino I leave with less money, not more. Same with the stock market. I have no edge. Every trade/decision I actively make loses me money. The more trades/decisions I make, the more likely I am to lose money.

I try to make as few as possible. This is probably the primary difference between Boglehead strategy and my own. Many here think that the knowledge of this or that allows them to make decisions with respect to things that happen to be supported by academic research. This board singlehandedly keeps portfoliovisualizer alive.They don't view the market as the house and themselves as a gambler with no edge; they view the market as the model and themselves as informed. therefore if x and y works in paper z, it'll work for them too. They of course don't trade stocks bc all the research shows this is pointless. They might tilt to this or that or whatever.

Again, my conception of the market is 100% defensible and coherent without any reliance on the accuracy or viability of EMH.

Recognize you don't have an edge, buy a Target date fund and live life on the sidelines. I still enjoy reading about econ and finance, but not with any purpose of it making me money. I just enjoy it.
Last edited by bgf on Fri May 22, 2020 12:09 pm, edited 6 times in total.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by rbaldini » Fri May 22, 2020 11:54 am

Regarding Taleb's grasp on reality: I like to share Sam Harris's take on Taleb. Sam Harris is a polarizing guy in his own right, but this quote is too entertaining not to share. See it here: https://www.reddit.com/r/samharris/comm ... sim_taleb/

That being said, insofar as Taleb's point is "assuming things are Gaussian/Normal can get you into serious trouble" (I'm not certain that this is his point, though), then it's an important one.

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by targetconfusion » Fri May 22, 2020 12:02 pm

[...]
steve321 wrote:
Fri May 22, 2020 11:33 am
Thanks! One last question concerning this point
targetconfusion wrote:
Fri May 22, 2020 11:24 am
Taleb, basically, believes the probability of extreme events ("tail risk") to be higher than most Bogleheads might. BHs (and I'm in the this camp, lest it sound pejorative) basically believe the future will look roughly like the past. Not that every year will be the same, but that they'll kind of be sampling from the same distribution of outcomes. Whereas, Taleb thinks Very Bad Things and Very Good Things will happen more often and be bigger.
How does this compare to Ray Dalio's understanding of the market and seeing events just as 'another one of those'? Does it mean that Dalio sees more regularity and predictability (through the study of history), whereas Taleb thinks that events impossible to predict happen? But then, Dalio did predict 2008.
I am asking this as I am trying to make a broad mental map of these different views to see how and why they differ.
I haven't read Dalio's popular literature and could not fairly summarize his beliefs but in my own imagination they all say things like*:

Bogleheads: "Buy the market cheaply and stop thinking about it."
Dalio: "Diversify, yes, but also maybe zig a bit where others zag."
Taleb: "You all don't get it there will be meteors and plagues of darkness and planning is futile. Wrest your heads from the sand, ostrich-sheep, recognize that everyone is lying to you. But I guess you have to buy something so maybe treasuries and, I don't know, out-of-the-money options?"

Obviously, everyone is selling books and there's an element of performance art all around.

*Note: these are of course not things any of the quoted people have said.

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by nisiprius » Fri May 22, 2020 12:11 pm

steve321 wrote:
Fri May 22, 2020 10:56 am
...Asness endorses most ideas of Fama and MPT...
Maybe.
...and is thus close to Bogleheads philosphy. By clobbering him Taleb has shown concepts like MPT, the idea of efficient markets etc to be intellectually dishonest. These concepts are at teh heart of Bogleheads philosphy.
No, I don't think MPT and efficient markets are at the core of "investing advice inspired by Jack Bogle." They are not far from it, but they are not at the core. John C. Bogle referred to "two schools of indexing, quantitative and pragmatic." The "quantitative" branch is associated with Fama, French, the EMH, MPT, and Dimensional Funds Advisors. The "pragmatic" branch is associated with Bogle, Samuelson, Charles D. Ellis, what Bogle liked to call the "cost matters hypothesis or CMH," and Vanguard.

John C. Bogle expressed this all clearly in a speech entitled:

As The Index Fund Moves from Heresy to Dogma . . . What More Do We Need To Know?.
...two separate and distinct intellectual ideas form the foundation for passive investment strategies. Academics and sophisticated students of the markets rely upon the EMH—the Efficient Market Hypothesis—which suggests that by reflecting the informed opinion of the mass of investors, stocks are continuously valued at prices that accurately reflect the totality of investor knowledge, and are thus fairly valued.

But we don’t need to accept the EMH to be index believers. For there is a second reason for the triumph of indexing, and it is not only more compelling but unarguably universal. I call it the CMH—the Cost Matters Hypothesis—and not only is it all that is needed to explain why indexing must and does work, but it in fact enables us to quantify with some precision how well it works. Whether or not the markets are efficient, the explanatory power of the CMH holds....

Two Schools of Indexing—Quantitative and Pragmatic

All these years later, the distinctly different intellectual approaches of the EMH and the CMH illuminate the history of indexing. The Quantitative School, led by masters of mathematics such as Harry Markowitz, William Fouse, John McQuown, Eugene Fama, and William F. Sharpe did complex equations and conducted exhaustive research on the financial markets to reach the conclusions that led to the EMH. In essence, the “Modern Portfolio Theory” developed by the Quantitative School showed that a fully-diversified, unmanaged equity portfolio was the surest route to investment success, a conclusion that lead to the formation of the first index pension account (for the Samsonite Corporation), formed by Wells Fargo Bank in 1971. That tiny $6 million account was invested in an equal-weighted index of New York Stock Exchange equities. Alas, its implementation proved to be a nightmare, and in 1976 it was replaced with the market-capitalization-weighted Standard & Poor’s 500 Common Stock Price Index, which remains the principal standard for pension fund indexing to this day.

While the Quantitative School developed its profound theories, what I’ll call the Pragmatic School simply looked at the evidence. In 1974, the Journal of Portfolio Management published an article by Dr. Samuelson entitled “Challenge to Judgment.” It noted that academics had been unable to identify any consistently excellent investment managers, challenged those who disagreed to produce “brute evidence to the contrary,” and pleaded for someone, somewhere to start an index fund. A year later, in an article entitled The Loser’s Game, Charles D. Ellis argued that, because of fees and transaction costs, 85% of pension accounts had underperformed the stock market. “If you can’t beat the market, you should certainly consider joining it,” Ellis concluded. “An index fund is one way.”

In mid-1975, I was both blissfully unaware of the work the quants were doing and profoundly inspired by the pragmatism of Samuelson and Ellis.
Last edited by nisiprius on Fri May 22, 2020 12:16 pm, edited 5 times in total.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by abuss368 » Fri May 22, 2020 12:12 pm

VictoriaF wrote:
Fri May 22, 2020 10:53 am
Neither Asness nor Taleb is a Boglehead.

The Bogleheads philosophy targets investors, not fund managers. The main principle of this philosophy is to invest in low-cost, broad-based, index funds.

Victoria
Agreed! :sharebeer
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by senex » Fri May 22, 2020 12:15 pm

steve321 wrote:
Fri May 22, 2020 10:56 am
Taleb has shown concepts like MPT, the idea of efficient markets etc to be intellectually dishonest. These concepts are at teh heart of Bogleheads philosphy. That's what I understand at present. Can someone help to see more clearly in this conundrum?
Boeing and Airbus have made provably bad design decisions, but I'll still fly their planes (well, before corona). They are darn good, and have no better alternative.

MPT probably has bad assumptions. Efficient market theory has always been incorrect, but it is very difficult, and often costly, to profit from the inefficiencies. Historically, few people have done it consistently. I.e. the market is darn good, and most people hav eno better alternative.

Bogleheadism "works" because it is not based on Gaussian distributions, or any distributions. It is based on old fashioned practical observations, like:
- the economy grows over time, and businesses make profits
- US markets are reasonably efficient
- "doing stuff" is costly (paying analysts/advisors, paying commissions/spreads, paying taxes on realized gains, borrowing money, etc)
- "doing stuff" takes a lot of effort (or, paying someone a lot of money to do it for you)

So yes, one could in theory design a better plane than Boeing, and one could in theory design a better portfolio than boglehead. But, I'll just fly Delta and buy VOO.

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by steve321 » Fri May 22, 2020 12:19 pm

targetconfusion wrote:
Fri May 22, 2020 12:02 pm
[...]
steve321 wrote:
Fri May 22, 2020 11:33 am
Thanks! One last question concerning this point
targetconfusion wrote:
Fri May 22, 2020 11:24 am
Taleb, basically, believes the probability of extreme events ("tail risk") to be higher than most Bogleheads might. BHs (and I'm in the this camp, lest it sound pejorative) basically believe the future will look roughly like the past. Not that every year will be the same, but that they'll kind of be sampling from the same distribution of outcomes. Whereas, Taleb thinks Very Bad Things and Very Good Things will happen more often and be bigger.
How does this compare to Ray Dalio's understanding of the market and seeing events just as 'another one of those'? Does it mean that Dalio sees more regularity and predictability (through the study of history), whereas Taleb thinks that events impossible to predict happen? But then, Dalio did predict 2008.
I am asking this as I am trying to make a broad mental map of these different views to see how and why they differ.
I haven't read Dalio's popular literature and could not fairly summarize his beliefs but in my own imagination they all say things like*:

Bogleheads: "Buy the market cheaply and stop thinking about it."
Dalio: "Diversify, yes, but also maybe zig a bit where others zag."
Taleb: "You all don't get it there will be meteors and plagues of darkness and planning is futile. Wrest your heads from the sand, ostrich-sheep, recognize that everyone is lying to you. But I guess you have to buy something so maybe treasuries and, I don't know, out-of-the-money options?"

Obviously, everyone is selling books and there's an element of performance art all around.

*Note: these are of course not things any of the quoted people have said.
Thanks again. Your explanations are very helpful. But as far as I understood Taleb would also say: invest in the market, but also but some insurance in a fund like Universa Investment that gains enormously in the case of a crisis. So retail investors could also do that and then 'stop thinking about it' like you say. But I don't know if there's a way to DIY this insurance (I started a different thread on it).
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by oldfort » Fri May 22, 2020 12:21 pm

steve321 wrote:
Fri May 22, 2020 11:17 am
all right then, but besides clobbering Asness he also wrote this about Fama and MPT
he great Mandelbrot despised Fama whom he found both clueless & dishonorable.

Fama was a French major & M supervised his thesis; they applied the Levy-Stable Distribution for markets (mistake since it's a limit not met preasymtotically).

Then Fama turned on M to use MPT.
Let's back away from the math and look at investing strategies. I'll admit I don't know what a Levy-Stable Distribution is.

Core boglehead - Invest in the total market. No one can beat the market on a risk adjusted basis.

Fama - Essentially the same as the boglehead approach. No one can beat the market on a risk adjusted basis. Invest in the total market. The total market is always on the efficient frontier and should be the default for most investors. If you have subjective risk preferences for small and value risks, the way some people prefer Coke to Pepsi, then a tilted portfolio might be as good, but not better, than owning the total market.

Asness - Fama was dead wrong. The market isn't efficient. My computer algorithms can pick which stocks will outperform or underperform the market. Using these computer algorithms, I can get higher returns with the same amount of risk or the same returns with lower risk.

Taleb - Invest in way out of the money options, which pay off in major market crashes.

Neither Asness nor Taleb follow the boglehead strategy.

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by steve321 » Fri May 22, 2020 12:28 pm

nisiprius wrote:
Fri May 22, 2020 12:11 pm
The "pragmatic" branch is associated with Bogle, Samuelson, Charles D. Ellis, what Bogle liked to call the "cost matters hypothesis or CMH," and Vanguard.

Thank you. But then Samuelson as far as I read invested with Buffett, instead of buying the whole market. So he did not put his money where his mouth was if that is the case.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by nisiprius » Fri May 22, 2020 12:28 pm

It's news to me that "Mandelbrot despised Fama whom he found both clueless & dishonorable." That would be interesting to me if true, but unfortunately I feel that I would want to hear it from a better source than Nassim Nicholas Taleb.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by Random Walker » Fri May 22, 2020 12:37 pm

targetconfusion wrote:
Fri May 22, 2020 11:24 am
dziuniek wrote:
Fri May 22, 2020 11:03 am
Taleb called Asness 'disgusting "AQR" luantic' ...
I've yet to see the other side of the exchange but that's nuts. Already losing some respect here. Seems like COVID is driving even the smartest folks nuts. :twisted:
Taleb has never really been a diplomat and this isn't new twitter behavior for him. But his behavior aside, which wasn't really the focus of the original question, the way I oversimplify it to myself is that Taleb, basically, believes the probability of extreme events ("tail risk") to be higher than most Bogleheads might. BHs (and I'm in the this camp, lest it sound pejorative) basically believe the future will look roughly like the past. Not that every year will be the same, but that they'll kind of be sampling from the same distribution of outcomes. Whereas, Taleb thinks Very Bad Things and Very Good Things will happen more often and be bigger.

It's a philosophical decision with portfolio implications. If you knew the future would be more Talebian, you could rig a portfolio to tolerate that future better than the standard Boglehead, low-cost, N-funder (e.g., by buying out-of-the-money puts). But if it turns out Boglesque, the hedges are a waste of money.

As others observe, Fama/MPT/AQR/Larry Swedroe aren't equivalent to "Bogleheads." But to my amateur understanding Taleb's big philosophical divergence once you clear away all the pottymouth tweeting and who fell out with whose PhD advisor is beliefs about tail risk.
My understanding is that Taleb has recommended a sort of barbell approach to investing: invest a portion of the portfolio in very high risk/reward assets and invest the remainder in the safest assets. I think this creates some significant potential common ground for him, Asness, and Bogleheads. A move towards risk parity is a move towards a more efficient portfolio.

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by KlangFool » Fri May 22, 2020 12:38 pm

targetconfusion wrote:
Fri May 22, 2020 11:24 am
dziuniek wrote:
Fri May 22, 2020 11:03 am
Taleb called Asness 'disgusting "AQR" luantic' ...
I've yet to see the other side of the exchange but that's nuts. Already losing some respect here. Seems like COVID is driving even the smartest folks nuts. :twisted:
Taleb has never really been a diplomat and this isn't new twitter behavior for him. But his behavior aside, which wasn't really the focus of the original question, the way I oversimplify it to myself is that Taleb, basically, believes the probability of extreme events ("tail risk") to be higher than most Bogleheads might. BHs (and I'm in the this camp, lest it sound pejorative) basically believe the future will look roughly like the past. Not that every year will be the same, but that they'll kind of be sampling from the same distribution of outcomes. Whereas, Taleb thinks Very Bad Things and Very Good Things will happen more often and be bigger.

It's a philosophical decision with portfolio implications. If you knew the future would be more Talebian, you could rig a portfolio to tolerate that future better than the standard Boglehead, low-cost, N-funder (e.g., by buying out-of-the-money puts). But if it turns out Boglesque, the hedges are a waste of money.

As others observe, Fama/MPT/AQR/Larry Swedroe aren't equivalent to "Bogleheads." But to my amateur understanding Taleb's big philosophical divergence once you clear away all the pottymouth tweeting and who fell out with whose PhD advisor is beliefs about tail risk.
targetconfusion,

In summary, "Black Swan" is not rare. It does exist. Hence, do not act surprised when "Black Swan" shows up.

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by Forester » Fri May 22, 2020 12:39 pm

I've noticed much interest in "tail risk" strategies lately. I think the "mispricing" of future volatility might be the next thing to disappear if the concept is packaged, sold & marketed to the public.

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by KlangFool » Fri May 22, 2020 12:41 pm

https://www.amazon.com/Reducing-Risk-Bl ... oks&sr=1-1

OP,

If you want a practical guide about investing in this debate, read the above book.

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by Seasonal » Fri May 22, 2020 12:41 pm

oldfort wrote:
Fri May 22, 2020 12:21 pm
Let's back away from the math and look at investing strategies. I'll admit I don't know what a Levy-Stable Distribution is.

Core boglehead - Invest in the total market. No one can beat the market on a risk adjusted basis.

Fama - Essentially the same as the boglehead approach. No one can beat the market on a risk adjusted basis. Invest in the total market. The total market is always on the efficient frontier and should be the default for most investors. If you have subjective risk preferences for small and value risks, the way some people prefer Coke to Pepsi, then a tilted portfolio might be as good, but not better, than owning the total market.

Asness - Fama was dead wrong. The market isn't efficient. My computer algorithms can pick which stocks will outperform or underperform the market. Using these computer algorithms, I can get higher returns with the same amount of risk or the same returns with lower risk.

Taleb - Invest in way out of the money options, which pay off in major market crashes.

Neither Asness nor Taleb follow the boglehead strategy.
It is possible that someone can beat the market on a risk adjusted basis (if nothing else, people can get lucky). The problem is that you can not reliably do it and you cannot reliably identify anyone who can reliably do it. Trying to beat the market will most likely result in underperforming, especially after costs.

I'd add costs matter to core boglehead. Also, avoid distractions and marketing, such as debates between Taleb and Asness.

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by bgf » Fri May 22, 2020 12:41 pm

Random Walker wrote:
Fri May 22, 2020 12:37 pm
targetconfusion wrote:
Fri May 22, 2020 11:24 am
dziuniek wrote:
Fri May 22, 2020 11:03 am
Taleb called Asness 'disgusting "AQR" luantic' ...
I've yet to see the other side of the exchange but that's nuts. Already losing some respect here. Seems like COVID is driving even the smartest folks nuts. :twisted:
Taleb has never really been a diplomat and this isn't new twitter behavior for him. But his behavior aside, which wasn't really the focus of the original question, the way I oversimplify it to myself is that Taleb, basically, believes the probability of extreme events ("tail risk") to be higher than most Bogleheads might. BHs (and I'm in the this camp, lest it sound pejorative) basically believe the future will look roughly like the past. Not that every year will be the same, but that they'll kind of be sampling from the same distribution of outcomes. Whereas, Taleb thinks Very Bad Things and Very Good Things will happen more often and be bigger.

It's a philosophical decision with portfolio implications. If you knew the future would be more Talebian, you could rig a portfolio to tolerate that future better than the standard Boglehead, low-cost, N-funder (e.g., by buying out-of-the-money puts). But if it turns out Boglesque, the hedges are a waste of money.

As others observe, Fama/MPT/AQR/Larry Swedroe aren't equivalent to "Bogleheads." But to my amateur understanding Taleb's big philosophical divergence once you clear away all the pottymouth tweeting and who fell out with whose PhD advisor is beliefs about tail risk.
My understanding is that Taleb has recommended a sort of barbell approach to investing: invest a portion of the portfolio in very high risk/reward assets and invest the remainder in the safest assets. I think this creates some significant potential common ground for him, Asness, and Bogleheads. A move towards risk parity is a move towards a more efficient portfolio.

Dave
Except that the entire concept of an "efficient portfolio" is anathema to Taleb. He would publicly shame you for using the words "efficient" or "optimized" on even the same page as any reference to him.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by Ferdinand2014 » Fri May 22, 2020 12:46 pm

steve321 wrote:
Fri May 22, 2020 10:56 am
VictoriaF wrote:
Fri May 22, 2020 10:53 am
Neither Asness nor Taleb is a Boglehead.

The Bogleheads philosophy targets investors, not fund managers. The main principle of this philosophy is to invest in low-cost, broad-based, index funds.

Victoria
Asness endorses most ideas of Fama and MPT and is thus close to Bogleheads philosphy. By clobbering him Taleb has shown concepts like MPT, the idea of efficient markets etc to be intellectually dishonest. These concepts are at teh heart of Bogleheads philosphy. That's what I understand at present. Can someone help to see more clearly in this conundrum?
MPT is not a requirement of Bogleheads. Low cost is. Owning the 'market' in a cap weighted fashion exactly mimics the market in the lowest possible cost and maximum efficiency while eliminating unsystematic risk. None of this requires MPT to be true.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by KlangFool » Fri May 22, 2020 12:50 pm

Seasonal wrote:
Fri May 22, 2020 12:41 pm

It is possible that someone can beat the market on a risk adjusted basis (if nothing else, people can get lucky). The problem is that you can not reliably do it and you cannot reliably identify anyone who can reliably do it. Trying to beat the market will most likely result in underperforming, especially after costs.
Seasonal,

I can buy a lottery ticket for $2. Yes, the chance for me to win is astronomical. But, the risk to me is small aka $2. But, the reward is high if I strike the lottery. And, before you say that is impossible, my uncles had strike lottery three times. He is a multi-millionaire.

So, there are very high risk and high reward investment. But, because of the high reward (lottery), the amount of money you need to put in is small ($2). Hence, it becomes low risk to you.

It makes sense to put a small amount of money ($2) in those kinds of investments. The losses is minimal and the reward is high.

KlangFool

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by Random Walker » Fri May 22, 2020 12:55 pm

bgf wrote:
Fri May 22, 2020 12:41 pm
Random Walker wrote:
Fri May 22, 2020 12:37 pm
targetconfusion wrote:
Fri May 22, 2020 11:24 am
dziuniek wrote:
Fri May 22, 2020 11:03 am
Taleb called Asness 'disgusting "AQR" luantic' ...
I've yet to see the other side of the exchange but that's nuts. Already losing some respect here. Seems like COVID is driving even the smartest folks nuts. :twisted:
Taleb has never really been a diplomat and this isn't new twitter behavior for him. But his behavior aside, which wasn't really the focus of the original question, the way I oversimplify it to myself is that Taleb, basically, believes the probability of extreme events ("tail risk") to be higher than most Bogleheads might. BHs (and I'm in the this camp, lest it sound pejorative) basically believe the future will look roughly like the past. Not that every year will be the same, but that they'll kind of be sampling from the same distribution of outcomes. Whereas, Taleb thinks Very Bad Things and Very Good Things will happen more often and be bigger.

It's a philosophical decision with portfolio implications. If you knew the future would be more Talebian, you could rig a portfolio to tolerate that future better than the standard Boglehead, low-cost, N-funder (e.g., by buying out-of-the-money puts). But if it turns out Boglesque, the hedges are a waste of money.

As others observe, Fama/MPT/AQR/Larry Swedroe aren't equivalent to "Bogleheads." But to my amateur understanding Taleb's big philosophical divergence once you clear away all the pottymouth tweeting and who fell out with whose PhD advisor is beliefs about tail risk.
My understanding is that Taleb has recommended a sort of barbell approach to investing: invest a portion of the portfolio in very high risk/reward assets and invest the remainder in the safest assets. I think this creates some significant potential common ground for him, Asness, and Bogleheads. A move towards risk parity is a move towards a more efficient portfolio.

Dave
Except that the entire concept of an "efficient portfolio" is anathema to Taleb. He would publicly shame you for using the words "efficient" or "optimized" on even the same page as any reference to him.
After reading one of his books, I’m pretty sure he’d shame me no matter what I said :-)

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by KlangFool » Fri May 22, 2020 12:57 pm

vineviz wrote:
Fri May 22, 2020 11:04 am
steve321 wrote:
Fri May 22, 2020 10:48 am
Can someone explain in simple terms how can it be possible for both Taleb's analysis and Bogleheads philosphy to be true?
It’s not possible, and the weak link is Taleb’s grip on reality.

I can’t remember who said this, but it rings true: Taleb is that guy who was once kind-of right about something and now acts as if he’s the only one who knows everything about anything.
vineviz,

He had been right for at least two times. Including this time.

https://www.bloomberg.com/news/articles ... 0-in-march

https://www.wsj.com/articles/SB122567265138591705

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Last edited by KlangFool on Fri May 22, 2020 1:01 pm, edited 1 time in total.

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by aristotelian » Fri May 22, 2020 12:58 pm

oldfort wrote:
Fri May 22, 2020 11:12 am

Assess is not anywhere close to being a boglehead. Bogleheads believe in owning the entire market. AQR exists to pick which stocks will beat the market or underperform the market.
Freudian slip?

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by aristotelian » Fri May 22, 2020 1:08 pm

steve321 wrote:
Fri May 22, 2020 10:56 am
Asness endorses most ideas of Fama and MPT and is thus close to Bogleheads philosphy. By clobbering him Taleb has shown concepts like MPT, the idea of efficient markets etc to be intellectually dishonest. These concepts are at teh heart of Bogleheads philosphy. That's what I understand at present. Can someone help to see more clearly in this conundrum?
I don't know anything about Asness. I do not know Taleb's work well but based on what I have seen, he does raise some concerns about MPT, namely, that past performance does not guarantee future results and the future does not have to be like the past. Bogleheads are well aware of this and many (not all) are more conservative than they need to be based on past data.

I don't see an alternative to EMH. It is obvious in retrospect that markets can become overvalued but that is not fatal to the theory. Certainly I do not think I am capable of beating the market.

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by ChrisBenn » Fri May 22, 2020 1:17 pm

Random Walker wrote:
Fri May 22, 2020 12:37 pm
(...)
My understanding is that Taleb has recommended a sort of barbell approach to investing: invest a portion of the portfolio in very high risk/reward assets and invest the remainder in the safest assets. I think this creates some significant potential common ground for him, Asness, and Bogleheads. A move towards risk parity is a move towards a more efficient portfolio.

Dave
I've never seen anything actionable from him re: retail investment, so from my point of view it feels a bit fortune-tellerish; To be fair I'm not his client so he had no obligation to provide said concrete advice, but I think it hurts his creditability as an expert when he can't provide actionable (and evaluatable) advice.

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by firebirdparts » Fri May 22, 2020 1:27 pm

Taleb has become a parody of himself, basically. Fame doesn't agree with everybody. He may not have been all that sane to start with.

Now that the asteroid has actually hit, he may be mad that nobody cares enough. Who knows.
Last edited by firebirdparts on Fri May 22, 2020 1:28 pm, edited 1 time in total.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by greg24 » Fri May 22, 2020 1:28 pm

Yeah, I'm not questioning my investment philosophy based on a twitter argument.

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by nisiprius » Fri May 22, 2020 1:30 pm

Taleb has a very convoluted, obfuscated way of saying "personally, I like to play long shots."
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by EnjoyIt » Fri May 22, 2020 1:31 pm

bgf wrote:
Fri May 22, 2020 11:53 am
steve321 wrote:
Fri May 22, 2020 11:33 am
targetconfusion wrote:
Fri May 22, 2020 11:24 am
dziuniek wrote:
Fri May 22, 2020 11:03 am
Taleb called Asness 'disgusting "AQR" luantic' ...
I've yet to see the other side of the exchange but that's nuts. Already losing some respect here. Seems like COVID is driving even the smartest folks nuts. :twisted:
Taleb has never really been a diplomat and this isn't new twitter behavior for him. But his behavior aside, which wasn't really the focus of the original question, the way I oversimplify it to myself is that Taleb, basically, believes the probability of extreme events ("tail risk") to be higher than most Bogleheads might. BHs (and I'm in the this camp, lest it sound pejorative) basically believe the future will look roughly like the past. Not that every year will be the same, but that they'll kind of be sampling from the same distribution of outcomes. Whereas, Taleb thinks Very Bad Things and Very Good Things will happen more often and be bigger.

It's a philosophical decision with portfolio implications. If you knew the future would be more Talebian, you could rig a portfolio to tolerate that future better than the standard Boglehead, low-cost, N-funder (e.g., by buying out-of-the-money puts). But if it turns out Boglesque, the hedges are a waste of money.

As others observe, Fama/MPT/AQR/Larry Swedroe aren't equivalent to "Bogleheads." But to my amateur understanding Taleb's big philosophical divergence once you clear away all the pottymouth tweeting and who fell out with whose PhD advisor is beliefs about tail risk.
Thanks! One last question concerning this point
Taleb, basically, believes the probability of extreme events ("tail risk") to be higher than most Bogleheads might. BHs (and I'm in the this camp, lest it sound pejorative) basically believe the future will look roughly like the past. Not that every year will be the same, but that they'll kind of be sampling from the same distribution of outcomes. Whereas, Taleb thinks Very Bad Things and Very Good Things will happen more often and be bigger.
How does this compare to Ray Dalio's understanding of the market and seeing events just as 'another one of those'? Does it mean that Dalio sees more regularity and predictability (through the study of history), whereas Taleb thinks that events impossible to predict happen? But then, Dalio did predict 2008.
I am asking this as I am trying to make a broad mental map of these different views to see how and why they differ.
I'd recommend you read popular works by Taleb, Thaler, Malkiel, Mandelbrot, Lo, and Ed Thorp. Also works on market history like When Genius Failed and Great Crash of 1929.

Anyway, others here clearly have formal educations in economics and finance. You can immediately tell which ones do. I, unfortunately, am not one of them, but my view of the market is taken primarily from Thaler, Mandelbrot, and Thorp. I invest in broad passive index funds NOT because I am a firm believer in EMH or any other model or theory, but simply because all my personal experience and learned experience supports the conclusion that the stock market is an incredibly difficult "game" to win. The market is the house. I'm just an average joe; when I go to the casino I leave with less money, not more. Same with the stock market. I have no edge. Every trade/decision I actively make loses me money. The more trades/decisions I make, the more likely I am to lose money.

I try to make as few as possible. This is probably the primary difference between Boglehead strategy and my own. Many here think that the knowledge of this or that allows them to make decisions with respect to things that happen to be supported by academic research. This board singlehandedly keeps portfoliovisualizer alive.They don't view the market as the house and themselves as a gambler with no edge; they view the market as the model and themselves as informed. therefore if x and y works in paper z, it'll work for them too. They of course don't trade stocks bc all the research shows this is pointless. They might tilt to this or that or whatever.

Again, my conception of the market is 100% defensible and coherent without any reliance on the accuracy or viability of EMH.

Recognize you don't have an edge, buy a Target date fund and live life on the sidelines. I still enjoy reading about econ and finance, but not with any purpose of it making me money. I just enjoy it.
Thank you for sharing your view. I found it very interesting.

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by Robot Monster » Fri May 22, 2020 1:32 pm

targetconfusion wrote:
Fri May 22, 2020 11:24 am
...the way I oversimplify it to myself is that Taleb, basically, believes the probability of extreme events ("tail risk") to be higher than most Bogleheads might. BHs (and I'm in the this camp, lest it sound pejorative) basically believe the future will look roughly like the past. Not that every year will be the same, but that they'll kind of be sampling from the same distribution of outcomes. Whereas, Taleb thinks Very Bad Things and Very Good Things will happen more often and be bigger.
Is it going too far to say Bogleheads believe the future is guaranteed to roughly look like the past? So, for instance, does a Boglehead, knowing that inflation-adjusted U.S. stock total returns have never been negative over 20 years, think they never can be? Really?

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by arcticpineapplecorp. » Fri May 22, 2020 1:35 pm

KlangFool wrote:
Fri May 22, 2020 12:50 pm
Seasonal wrote:
Fri May 22, 2020 12:41 pm

It is possible that someone can beat the market on a risk adjusted basis (if nothing else, people can get lucky). The problem is that you can not reliably do it and you cannot reliably identify anyone who can reliably do it. Trying to beat the market will most likely result in underperforming, especially after costs.
Seasonal,

I can buy a lottery ticket for $2. Yes, the chance for me to win is astronomical. But, the risk to me is small aka $2. But, the reward is high if I strike the lottery. And, before you say that is impossible, my uncles had strike lottery three times. He is a multi-millionaire.

So, there are very high risk and high reward investment. But, because of the high reward (lottery), the amount of money you need to put in is small ($2). Hence, it becomes low risk to you.

It makes sense to put a small amount of money ($2) in those kinds of investments. The losses is minimal and the reward is high.

KlangFool
with the lottery, over time there is a negative expected return (-50% generally)
with the stock market as a whole, over time there is a positive expected return.

It's clearly not impossible to win a lottery. Someone has to. But it's an even harder needle to find in a haystack, which makes it not worth it, considering the positive expected return one can get on the same money by investing in the total market.

just because a person won a lottery multiple times, isn't proof of anything, other than a lucky outcome. Don't confuse stategy with outcome. Even lightning can strike twice. A coin toss can come up heads several times in a row. Over time, the odds are known. So too with the lottery. If the strategy is so good why not keep trying to become a lottery billionaire?
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by KlangFool » Fri May 22, 2020 1:40 pm

arcticpineapplecorp. wrote:
Fri May 22, 2020 1:35 pm
KlangFool wrote:
Fri May 22, 2020 12:50 pm
Seasonal wrote:
Fri May 22, 2020 12:41 pm

It is possible that someone can beat the market on a risk adjusted basis (if nothing else, people can get lucky). The problem is that you can not reliably do it and you cannot reliably identify anyone who can reliably do it. Trying to beat the market will most likely result in underperforming, especially after costs.
Seasonal,

I can buy a lottery ticket for $2. Yes, the chance for me to win is astronomical. But, the risk to me is small aka $2. But, the reward is high if I strike the lottery. And, before you say that is impossible, my uncles had strike lottery three times. He is a multi-millionaire.

So, there are very high risk and high reward investment. But, because of the high reward (lottery), the amount of money you need to put in is small ($2). Hence, it becomes low risk to you.

It makes sense to put a small amount of money ($2) in those kinds of investments. The losses is minimal and the reward is high.

KlangFool
with the lottery, over time there is a negative expected return (-50% generally)
with the stock market as a whole, over time there is a positive expected return.
arcticpineapplecorp.,

<<with the lottery, over time there is a negative expected return (-50% generally) >>

And, why would that matters if I only buy one lottery ticket per year.

KlangFool

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steve321
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by steve321 » Fri May 22, 2020 1:44 pm

nisiprius wrote:
Fri May 22, 2020 1:30 pm
Taleb has a very convoluted, obfuscated way of saying "personally, I like to play long shots."
long shots with a huge payoff. Perhaps it's rational.
Success does not bring happiness. In fact, happiness IS success. | 'There are only two tragedies in life: one is not getting what one wants, and the other is getting it.' Oscar Wilde

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by KlangFool » Fri May 22, 2020 1:47 pm

steve321 wrote:
Fri May 22, 2020 1:44 pm
nisiprius wrote:
Fri May 22, 2020 1:30 pm
Taleb has a very convoluted, obfuscated way of saying "personally, I like to play long shots."
long shots with a huge payoff. Perhaps it's rational.
And, he had got it right and won big twice. So, there should be some merit in his method.

KlangFool

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by arcticpineapplecorp. » Fri May 22, 2020 1:48 pm

KlangFool wrote:
Fri May 22, 2020 1:40 pm
arcticpineapplecorp. wrote:
Fri May 22, 2020 1:35 pm
KlangFool wrote:
Fri May 22, 2020 12:50 pm
Seasonal wrote:
Fri May 22, 2020 12:41 pm

It is possible that someone can beat the market on a risk adjusted basis (if nothing else, people can get lucky). The problem is that you can not reliably do it and you cannot reliably identify anyone who can reliably do it. Trying to beat the market will most likely result in underperforming, especially after costs.
Seasonal,

I can buy a lottery ticket for $2. Yes, the chance for me to win is astronomical. But, the risk to me is small aka $2. But, the reward is high if I strike the lottery. And, before you say that is impossible, my uncles had strike lottery three times. He is a multi-millionaire.

So, there are very high risk and high reward investment. But, because of the high reward (lottery), the amount of money you need to put in is small ($2). Hence, it becomes low risk to you.

It makes sense to put a small amount of money ($2) in those kinds of investments. The losses is minimal and the reward is high.

KlangFool
with the lottery, over time there is a negative expected return (-50% generally)
with the stock market as a whole, over time there is a positive expected return.
arcticpineapplecorp.,

<<with the lottery, over time there is a negative expected return (-50% generally) >>

And, why would that matters if I only buy one lottery ticket per year.

KlangFool
nothing. people waste money all the time.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by columbia » Fri May 22, 2020 1:49 pm

nisiprius wrote:
Fri May 22, 2020 1:30 pm
Taleb has a very convoluted, obfuscated way of saying "personally, I like to play long shots."
I take it as: I’m rich enough to live with cash and bills returns, but hedge a bit for an outsized payout when the rest of you are in deep pain.

I don’t know if that’s a good strategy, but it’s not irrational.
If you leave your head in the sand for too long, you might get run over by a Jeep.

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by junior » Fri May 22, 2020 1:51 pm

KlangFool wrote:
Fri May 22, 2020 1:47 pm
steve321 wrote:
Fri May 22, 2020 1:44 pm
nisiprius wrote:
Fri May 22, 2020 1:30 pm
Taleb has a very convoluted, obfuscated way of saying "personally, I like to play long shots."
long shots with a huge payoff. Perhaps it's rational.
And, he had got it right and won big twice. So, there should be some merit in his method.

KlangFool
His funds don't have results that are posted publically do they?

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by steve321 » Fri May 22, 2020 1:52 pm

nisiprius wrote:
Fri May 22, 2020 12:28 pm
It's news to me that "Mandelbrot despised Fama whom he found both clueless & dishonorable." That would be interesting to me if true, but unfortunately I feel that I would want to hear it from a better source than Nassim Nicholas Taleb.
Why not trust him? he seems to have integrity. Boglehead Victoria likes him, but I haven't understood if this is based on an in depth judgement or just on the fact that he was nice to her in a bookshop. Be as it may he does not seem to be a liar.
Success does not bring happiness. In fact, happiness IS success. | 'There are only two tragedies in life: one is not getting what one wants, and the other is getting it.' Oscar Wilde

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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by KlangFool » Fri May 22, 2020 1:53 pm

columbia wrote:
Fri May 22, 2020 1:49 pm
nisiprius wrote:
Fri May 22, 2020 1:30 pm
Taleb has a very convoluted, obfuscated way of saying "personally, I like to play long shots."
I take it as: I’m rich enough to live with cash and bills returns, but hedge a bit for an outsized payout when the rest of you are in deep pain.

I don’t know if that’s a good strategy, but it’s not irrational.
Columbia,

https://en.wikipedia.org/wiki/Nassim_Nicholas_Taleb

That statement is not exactly true. As far as I know, Taleb got rich from his 2008 bet. So, he did eat what he preaches.

KlangFool

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