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

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

Post by KlangFool » Fri May 22, 2020 1:55 pm

junior wrote:
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?
If you read further up the page, I had posted the links. He was right about 2008 and 2020 (this year).

KlangFool

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

Post by junior » Fri May 22, 2020 1:59 pm

KlangFool wrote:
Fri May 22, 2020 1:55 pm
junior wrote:
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?
If you read further up the page, I had posted the links. He was right about 2008 and 2020 (this year).

KlangFool
As far as I can tell you posted two paywalled articles from journalists saying he made a lot of money. Are his results actually available online so you can verify what the journalists claim is true?

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

Post by randomguy » Fri May 22, 2020 2:01 pm

junior wrote:
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?
That is the real question. I would worry about sampling issues. What if I am right every 10 years on average with one of these calls? The odds of not being right over 30 or 40 years is pretty darn high. History is full of people that made the right call for a decade. The list that make it to 30 years is much, much shorter.

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

Post by KlangFool » Fri May 22, 2020 2:02 pm

steve321 wrote:
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.
steve321,

<<Why not trust him? >>

I do not understand this statement. Why do you need to trust anyone? We are critical thinkers. If the ideas are useful and we can make use of them, then, use it. Or else, do something else.

If I cannot explain to myself in a simple term with a pencil writing behind an envelope, then, I would use something else.

If someone/something forces you to look at something in a different way and increases your understanding of the world, it is useful and educational. And, those kinds of people tend to make you very uncomfortable. It forces you to change your world view.

Nassim Taleb does that to many people. He is a great teacher to many.

KlangFool

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

Post by KlangFool » Fri May 22, 2020 2:04 pm

junior wrote:
Fri May 22, 2020 1:59 pm
KlangFool wrote:
Fri May 22, 2020 1:55 pm
junior wrote:
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


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?
If you read further up the page, I had posted the links. He was right about 2008 and 2020 (this year).

KlangFool
As far as I can tell you posted two paywalled articles from journalists saying he made a lot of money. Are his results actually available online so you can verify what the journalists claim is true?
junior,

I do not care enough to verify. His ideas are useful to me regardless of whether he actually make money from that.

KlangFool

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

Post by junior » Fri May 22, 2020 2:06 pm

randomguy wrote:
Fri May 22, 2020 2:01 pm

That is the real question. I would worry about sampling issues. What if I am right every 10 years on average with one of these calls? The odds of not being right over 30 or 40 years is pretty darn high. History is full of people that made the right call for a decade. The list that make it to 30 years is much, much shorter.
Yep. In 1999 the best investor in the world was the guy who ran Motley Fool because he bought the best stock in the world, pets.com. I can prove it with an article from 1999 about how this guy was a genius because he understood the new economy and became a billionaire off pets.com.

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

Post by targetconfusion » Fri May 22, 2020 2:08 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
This is the point, I think. Is playing high-reward long shots a good idea? Maybe, depending on how often they occur and how much they cost to play. By Taleb's own description, our sample of market history is too small to reliably estimate that frequency. You'd have to experiment by setting up two competing portfolios and press play for 10k years or however long Taleb thinks it takes to get a representative sample.

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

Post by targetconfusion » Fri May 22, 2020 2:11 pm

randomguy wrote:
Fri May 22, 2020 2:01 pm
junior wrote:
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?
That is the real question. I would worry about sampling issues. What if I am right every 10 years on average with one of these calls? The odds of not being right over 30 or 40 years is pretty darn high. History is full of people that made the right call for a decade. The list that make it to 30 years is much, much shorter.
I'm sure this has been posted elsewhere in this forum, but as usual XKCD says it with the perfect blend of eloquence, brevity, and humor:
https://xkcd.com/1827/

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

Post by KlangFool » Fri May 22, 2020 2:13 pm

randomguy wrote:
Fri May 22, 2020 2:01 pm

That is the real question. I would worry about sampling issues. What if I am right every 10 years on average with one of these calls? The odds of not being right over 30 or 40 years is pretty darn high. History is full of people that made the right call for a decade. The list that make it to 30 years is much, much shorter.
randomguy,

If the payback for one of the calls is 100X return, why should this matter?

You invest 99% of your money in the normal way. You put 1% of your money in this very long shot. It is a win-win proposition.

A) If you are wrong, it won't matter. You only lose 1%.

B) If you are right, you win very big.

<<History is full of people that made the right call for a decade. >>

But, their right call payback is so low that even after a decade, they are still working. In the case of Taleb, he made one right call in 2008, he made enough money to retire. That is the difference.

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 2:16 pm

targetconfusion wrote:
Fri May 22, 2020 2:08 pm
You'd have to experiment by setting up two competing portfolios and press play for 10k years or however long Taleb thinks it takes to get a representative sample.
But then if it can't be decided now, why did he chose his strategy?
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

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

Post by KlangFool » Fri May 22, 2020 2:17 pm

targetconfusion wrote:
Fri May 22, 2020 2:08 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
This is the point, I think. Is playing high-reward long shots a good idea? Maybe, depending on how often they occur and how much they cost to play. By Taleb's own description, our sample of market history is too small to reliably estimate that frequency. You'd have to experiment by setting up two competing portfolios and press play for 10k years or however long Taleb thinks it takes to get a representative sample.
targetconfusion,

The kind of very long shot happened in 2008 and 2020. And, the kind of return that we are talking about is 30X to 100X.

<<You'd have to experiment by setting up two competing portfolios and press play for 10k years or however long Taleb thinks it takes to get a representative sample.>>

Why? You can get the best of both worlds by investing 99% the normal way and 1% in the very long shot.

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 2:18 pm

steve321 wrote:
Fri May 22, 2020 2:16 pm
targetconfusion wrote:
Fri May 22, 2020 2:08 pm
You'd have to experiment by setting up two competing portfolios and press play for 10k years or however long Taleb thinks it takes to get a representative sample.
But then if it can't be decided now, why did he chose his hedging strategy?
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

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

Post by KlangFool » Fri May 22, 2020 2:18 pm

steve321 wrote:
Fri May 22, 2020 2:16 pm
targetconfusion wrote:
Fri May 22, 2020 2:08 pm
You'd have to experiment by setting up two competing portfolios and press play for 10k years or however long Taleb thinks it takes to get a representative sample.
But then if it can't be decided now, why did he chose his strategy?
Why not? For 1% of his money, it is worth the risk.

KlangFool

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

Post by sean.mcgrath » Fri May 22, 2020 2:28 pm

KlangFool wrote:
Fri May 22, 2020 1:40 pm
arcticpineapplecorp. wrote:
Fri May 22, 2020 1:35 pm

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
Hi Klang,

The reason is because it lets you quantify and rank strategies.

For example, if your goal is to, once per year, spend $2 with the hope of becoming a millionaire: what is the best way to do it (the way with the highest chance of success)?

Assuming Arctic's -50% is roughly correct, a much better way would be to go to a casino, put all the money on green, and keep doing that until you either lose or you are a millionaire. This has a much higher chance of hitting your goal than the lottery ticket. I would need to think a bit to do the math, but it is much, much more likely. Over your lifetime, this gives you a wildly better (although still poor) chance of hitting your jackpot.

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

Post by KlangFool » Fri May 22, 2020 2:39 pm

sean.mcgrath wrote:
Fri May 22, 2020 2:28 pm


Hi Klang,

The reason is because it lets you quantify and rank strategies.

For example, if your goal is to, once per year, spend $2 with the hope of becoming a millionaire: what is the best way to do it (the way with the highest chance of success)?

Assuming Arctic's -50% is roughly correct, a much better way would be to go to a casino, put all the money on green, and keep doing that until you either lose or you are a millionaire. This has a much higher chance of hitting your goal than the lottery ticket. I would need to think a bit to do the math, but it is much, much more likely. Over your lifetime, this gives you a wildly better (although still poor) chance of hitting your jackpot.
sean.mcgrath,

<<a much better way would be to go to a casino, put all the money on green, and keep doing that until you either lose or you are a millionaire. >>

Please explain to me why (B) is a better bet.

A) Put $2 on a lottery ticket every year for 20 years. I only have to be right once to be a millionaire.

B) Put $2 X 20 = $40 on the green. I have to be right multiple times in order to be a millionaire.

I only have to right once for (A).

<<This has a much higher chance of hitting your goal than the lottery ticket. >>

And, the lottery ticker may be paying 50 to 100 million too.

They are both very long shots. But the maximum payback for one right call is different.

KlangFool

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

Post by randomguy » Fri May 22, 2020 2:43 pm

KlangFool wrote:
Fri May 22, 2020 2:13 pm
randomguy wrote:
Fri May 22, 2020 2:01 pm

That is the real question. I would worry about sampling issues. What if I am right every 10 years on average with one of these calls? The odds of not being right over 30 or 40 years is pretty darn high. History is full of people that made the right call for a decade. The list that make it to 30 years is much, much shorter.
randomguy,

If the payback for one of the calls is 100X return, why should this matter?

You invest 99% of your money in the normal way. You put 1% of your money in this very long shot. It is a win-win proposition.

A) If you are wrong, it won't matter. You only lose 1%.

B) If you are right, you win very big.

<<History is full of people that made the right call for a decade. >>

But, their right call payback is so low that even after a decade, they are still working. In the case of Taleb, he made one right call in 2008, he made enough money to retire. That is the difference.

KlangFool
Lets do the math
a) 99% invested conservatively (Taleb was pushing tbills last I checked) returns ~0%
b) 1% returns like 100x

Great on on average when my 1:10 event shows up I make 7%. every 10 years. Sounds great. What about if it only shows up once in 20 years? Now my return is down at 3.5%. Still don't think it matters? This same issue shows up whenever barbell strategies are discussed. Holding less stocks but having more in SV sounds great. Until you hit that 20 year patch where it underperforms at the wrong time.

Now this is a vast simplification of what Taleb is doing. He is trying to make 100s of bets to get the long term avearge. And of course the really tough part is to evaluate if the long shot bets you make are priced right. You can go to any sports book in Vegas and make all sorts of long shot bets. Odds are though they are priced so that you lose money. You need long shot bets whose expected value is positive for this strategy to workout. Not sure how many. of those the average person comes across.

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

Post by bgf » Fri May 22, 2020 2:43 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.
It WAS a good strategy. Taleb argued that reliance on 'academic theory' resulted in a underappreciation and mispricing of "rare events." The only reason it was profitable to make his trades was because they were very cheap. The market misunderstood and mispriced the likelihood and magnitude of these rare events...

I dont think thats the case anymore. Its become far more expensive to simply buy OTM calls and hope to make enough back for your years of constant and trickling losses. Not to mention, we know humans do very poorly when it comes to repeated and consistent losses. Generally, we just can't stick to those kinds of strategies.

I dont think Talebs "barbell" of 10% uber risky 90% ultrasafe can be expected to outperform a simple buy and hold index strategy so long as you can stick to that strategy. Basically, you'd need to already have enough wealth that the 90% cash was "enough." I've read Taleb's books, and I really didn't find anything directly helpful for my situation (average joe contributing to hopefully retire one day). Of course this could be my own failure as a reader.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

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

Post by bgf » Fri May 22, 2020 2:47 pm

KlangFool wrote:
Fri May 22, 2020 2:17 pm
targetconfusion wrote:
Fri May 22, 2020 2:08 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
This is the point, I think. Is playing high-reward long shots a good idea? Maybe, depending on how often they occur and how much they cost to play. By Taleb's own description, our sample of market history is too small to reliably estimate that frequency. You'd have to experiment by setting up two competing portfolios and press play for 10k years or however long Taleb thinks it takes to get a representative sample.
targetconfusion,

The kind of very long shot happened in 2008 and 2020. And, the kind of return that we are talking about is 30X to 100X.

<<You'd have to experiment by setting up two competing portfolios and press play for 10k years or however long Taleb thinks it takes to get a representative sample.>>

Why? You can get the best of both worlds by investing 99% the normal way and 1% in the very long shot.

KlangFool
I'd love to know what strategy started say in 2010 would have resulted in a 30x-100x return when covid hit.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

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

Post by KlangFool » Fri May 22, 2020 2:49 pm

randomguy wrote:
Fri May 22, 2020 2:43 pm

Lets do the math
a) 99% invested conservatively (Taleb was pushing tbills last I checked) returns ~0%
b) 1% returns like 100x
randomguy.

We are not Taleb. He has about 100X to 200X his annual expense. So, essentially, he is FI with T-Bills. For normal people like us, the answer would be

A) 99% in a 60/40 portfolio.

B) 1% in a very long shot with possible 100X return.

KlangFool

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

Post by KlangFool » Fri May 22, 2020 2:50 pm

bgf wrote:
Fri May 22, 2020 2:47 pm
KlangFool wrote:
Fri May 22, 2020 2:17 pm
targetconfusion wrote:
Fri May 22, 2020 2:08 pm
KlangFool wrote:
Fri May 22, 2020 1:47 pm
steve321 wrote:
Fri May 22, 2020 1:44 pm

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
This is the point, I think. Is playing high-reward long shots a good idea? Maybe, depending on how often they occur and how much they cost to play. By Taleb's own description, our sample of market history is too small to reliably estimate that frequency. You'd have to experiment by setting up two competing portfolios and press play for 10k years or however long Taleb thinks it takes to get a representative sample.
targetconfusion,

The kind of very long shot happened in 2008 and 2020. And, the kind of return that we are talking about is 30X to 100X.

<<You'd have to experiment by setting up two competing portfolios and press play for 10k years or however long Taleb thinks it takes to get a representative sample.>>

Why? You can get the best of both worlds by investing 99% the normal way and 1% in the very long shot.

KlangFool
I'd love to know what strategy started say in 2010 would have resulted in a 30x-100x return when covid hit.
I am not Taleb.

KlangFool

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

Post by vineviz » Fri May 22, 2020 2:53 pm

steve321 wrote:
Fri May 22, 2020 1:52 pm
Why not trust him? he seems to have integrity.
It doesn’t seem that many people who know him are using the word “integrity” to describe Taleb.

Intelligent? Maybe, but likely not as intelligent as he thinks he is.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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

Post by randomguy » Fri May 22, 2020 2:54 pm

KlangFool wrote:
Fri May 22, 2020 2:39 pm
sean.mcgrath wrote:
Fri May 22, 2020 2:28 pm


Hi Klang,

The reason is because it lets you quantify and rank strategies.

For example, if your goal is to, once per year, spend $2 with the hope of becoming a millionaire: what is the best way to do it (the way with the highest chance of success)?

Assuming Arctic's -50% is roughly correct, a much better way would be to go to a casino, put all the money on green, and keep doing that until you either lose or you are a millionaire. This has a much higher chance of hitting your goal than the lottery ticket. I would need to think a bit to do the math, but it is much, much more likely. Over your lifetime, this gives you a wildly better (although still poor) chance of hitting your jackpot.
sean.mcgrath,

<<a much better way would be to go to a casino, put all the money on green, and keep doing that until you either lose or you are a millionaire. >>

Please explain to me why (B) is a better bet.

A) Put $2 on a lottery ticket every year for 20 years. I only have to be right once to be a millionaire.

B) Put $2 X 20 = $40 on the green. I have to be right multiple times in order to be a millionaire.

I only have to right once for (A).

<<This has a much higher chance of hitting your goal than the lottery ticket. >>

And, the lottery ticker may be paying 50 to 100 million too.

They are both very long shots. But the maximum payback for one right call is different.

KlangFool
A is a 1:50-100 million event (depends on your lottery). B is a 1:500k event. If you adjust B to have the same odds as A, the payout is higher. Yeah. you. only need to be right once, but your odds of being right are absurdly small.

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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 2:58 pm

vineviz wrote:
Fri May 22, 2020 2:53 pm
steve321 wrote:
Fri May 22, 2020 1:52 pm
Why not trust him? he seems to have integrity.
It doesn’t seem that many people who know him are using the word “integrity” to describe Taleb.

Intelligent? Maybe, but likely not as intelligent as he thinks he is.
Which people were you thinking of in particular?

VictoriaF here says she know him (unless it was just to sign a book?). Perhaps she could let us know if she know his moral character?
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 3:01 pm

randomguy wrote:
Fri May 22, 2020 2:54 pm


A is a 1:50-100 million event (depends on your lottery). B is a 1:500k event. If you adjust B to have the same odds as A, the payout is higher. Yeah. you. only need to be right once, but your odds of being right are absurdly small.
randomguy,

You got it. That is the whole point. Bet on (A). Do not bet on (B).

<< Yeah. you. only need to be right once, but your odds of being right are absurdly small.
>>

Taleb only got it right twice (2008 and 2020) across 12 to 20 years. But, being right once (2008) is good enough for him to FI for the rest of his life.

KlangFool

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

Post by hohum » Fri May 22, 2020 3:08 pm

Taleb was right in 1987 also. He discusses this in his books. Something about working for a trading firm, holding some crazy out of the money puts on the S&P 500, and having a huge payoff. His bonus was big enough that he could quit and pursue his dream of being a flaneur ...

That being said, it is really difficult for a non-professional to pursue this kind of strategy. Mostly because of the feeling "I'm just throwing money away" when the puts don't pay off for five or more years. It's hard to keep buying when you lost the last ten times in a row. Taleb's books also lament the fact that it is hard to educate customers on the value of black swan insurance.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosophy

Post by EnjoyIt » Fri May 22, 2020 3:16 pm

We see people pitch doom and gloom all the time. With enough people, and over enough time one of them will get it right and be called a genius.

If one has many different 1% low probability high reward bets, they tend to add up well over 1% and become a significant drain on one’s portfolio unless of course they are that rare person who gets lucky.

I enjoy reading experts and their predictions. For me it’s for entertainment value and how I know that more than likely they will be wrong. Again, you read enough experts and eventually one will get it right.

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

Post by ChrisBenn » Fri May 22, 2020 3:23 pm

KlangFool wrote:
Fri May 22, 2020 2:49 pm
randomguy wrote:
Fri May 22, 2020 2:43 pm

Lets do the math
a) 99% invested conservatively (Taleb was pushing tbills last I checked) returns ~0%
b) 1% returns like 100x
randomguy.

We are not Taleb. He has about 100X to 200X his annual expense. So, essentially, he is FI with T-Bills. For normal people like us, the answer would be

A) 99% in a 60/40 portfolio.

B) 1% in a very long shot with possible 100X return.

KlangFool
What investment are you going to choose for B? Options on SPY? What kind, what strike, whats the strategy for picking them? Some other instrument? I'm still dubious as to the viability at a retail level - and the lack of a concrete, implementable strategy.

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

Post by KlangFool » Fri May 22, 2020 3:26 pm

ChrisBenn wrote:
Fri May 22, 2020 3:23 pm
KlangFool wrote:
Fri May 22, 2020 2:49 pm
randomguy wrote:
Fri May 22, 2020 2:43 pm

Lets do the math
a) 99% invested conservatively (Taleb was pushing tbills last I checked) returns ~0%
b) 1% returns like 100x
randomguy.

We are not Taleb. He has about 100X to 200X his annual expense. So, essentially, he is FI with T-Bills. For normal people like us, the answer would be

A) 99% in a 60/40 portfolio.

B) 1% in a very long shot with possible 100X return.

KlangFool
What investment are you going to choose for B? Options on SPY? What kind, what strike, whats the strategy for picking them? Some other instrument? I'm still dubious as to the viability at a retail level - and the lack of a concrete, implementable strategy.
ChrisBenn,

In my case, they are very long shot microcap stocks with very interesting technologies.

KlangFool

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

Post by typical.investor » Fri May 22, 2020 3:55 pm

My take was Asness thought Taleb’s strategy was too expensive especially for a fund of any size.

The AQR suggestion for downside protection (managed futures) hasn’t worked out either though.

For me, I don’t see either of their solutions as really desirable. Safe bonds it is.

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

Post by SteadyOne » Fri May 22, 2020 4:43 pm

ChrisBenn wrote:
Fri May 22, 2020 3:23 pm
KlangFool wrote:
Fri May 22, 2020 2:49 pm
randomguy wrote:
Fri May 22, 2020 2:43 pm

Lets do the math
a) 99% invested conservatively (Taleb was pushing tbills last I checked) returns ~0%
b) 1% returns like 100x
randomguy.

We are not Taleb. He has about 100X to 200X his annual expense. So, essentially, he is FI with T-Bills. For normal people like us, the answer would be

A) 99% in a 60/40 portfolio.

B) 1% in a very long shot with possible 100X return.

KlangFool
What investment are you going to choose for B? Options on SPY? What kind, what strike, whats the strategy for picking them? Some other instrument? I'm still dubious as to the viability at a retail level - and the lack of a concrete, implementable strategy.
One needs access to sophisticated financial instruments to get it done. For example, I was convinced that housing bubble in 2007 was a bubble and will burst catastrophically, but I had no idea how to monetize that. I was not a hedgie or trader or had substantial assets (or better other peoples money) to make this bet. Following the route of Michael Burry of Big Short fame was not on the radar and actually at the time was not well understood even on the Wall Street. The only thing I could have done at the time was NOT to buy investment properties or financial stocks. So I did not lose a lot of money, but I did not make any.

I doubt that retail investor can do any of this. And playing with options (that are expensive now) require sophistication and knowledge and time. One mistake and you can be wiped out: recall recent negative oil prices and stories about retail option players who ended up upside down and potentially facing personal bankruptcies. I agree with Klangfool that for most people 60/40 is the right course to proceed.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosophy

Post by corp_sharecropper » Fri May 22, 2020 4:50 pm

How to reconcile these battles? Do both.

Step 1) save more

Step 2) spend less

Step 3) discard unknowable personal expectations, greatest fantasies, and darkest fears of how your retirement might be or might have been.

Step 4) Add reasonable & manageable leverage. Your choice. For some that goes only as far as a mortgage for one's primary residence. For others, myself included, it entails the former plus some option leverage plus a little margin.

Step 5) with the newly found portfolio room from steps 1, 2, and 4, add the alternative investment viewpoint, whether that's black swan defensive (Taken), bogleheads mantra, or whatever.

Step 6) Sleep well, knowing you've done everything in your control to make it through the unknowable future, and that you're likely infinitely better equipped to take advantage of good times & prepared to weather bad times than 99.99999% of every homo sapien that is currently living, and has ever lived, on planet earth.

Step 7) profit?

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

Post by grog » Fri May 22, 2020 5:19 pm

I view modern financial theories as completely inessential to the indexing philosophy. The key ideas are simply the "humble rules of arithmetic" and the "costs matter" argument. Investors in aggregate must earn the aggregate market return less costs. This is an arithmetic truism and does not depend on statistical assumptions or anything else. Bogle said the best strategy is to take the average market return and minimize the costs. This argument doesn't really depend on modern portfolio theory, mean-variance optimization, or even the efficient markets hypothesis. You can dismiss of all these things and still favor index funds.

Asness's company sells expensive factor funds that while "passive" in the sense of being largely algorithmic are active funds for all intents and purposes. Not very Boglehead. Asness is indeed heavily committed to the modern financial literature, but again that stuff is strictly optional in the Boglehead approach.

I don't recall having seen Taleb comment specifically on indexing. But in general he seems to view the system as overly "fragile" (one of his buzzwords). To the extent I've seen practical investment advice from him, it seems to be to go long volatility and make money when things blow up, overall a pretty bearish view. That might be the main difference Bogleheads is what I would call "long-term bullish." I agree with him (and many others) that there is a fragility to the current system with its heavy use of leverage and financialization and the asymmetry of private gains and socialized costs, especially true in the "too big to fail" era. But at the end of the day I am long-term bullish. I think most businesses are still fundamentally productive and it's a good bet to go long stocks. And I think buying and holding stocks will probably make more over time than way out-of-the-money put options (which contrary to Taleb, are not dramatically underpriced but rather seem to sell at a kind of insurance premium).

A possible Taleb-inspired critique of indexing one could make is that because the index investor is investing a tiny percentage in every company with complete indifference, it divorces the money from any knowledge of or interaction with the underlying business. In terms of the principal-agent problem, you could say the principals are not paying attention and are relying on a few proxies to govern the companies. And this raises the question of how to govern the proxies who in turn govern company management. This would seem to go against Taleb's "skin in the game" mantra. Now people have a little bit of skin in a lot of companies and don't really care about a single one of em. They essentially have skin in "the market." There may be something to this type of critique. I don't know. Regardless, given current circumstances, I think the optimal strategy at the individual level is highly diversified index investing.

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

Post by JonnyB » Fri May 22, 2020 7:41 pm

"Never argue with a fool. Onlookers may not be able to tell the difference."

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

Post by JoMoney » Fri May 22, 2020 8:29 pm

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?
The advice offered by John Bogle doesn't rely on the "Efficent Market Hypothesis", Fama-French Risk Factors, Modern Portfolio Theory, or any of the other hogwash models. There is plenty of that the goes on here on this board, but it's all a tangent to the fact that investors as a group can't beat themselves.

If you're tilted to some wacky strategy, thinking it's going to garner you something extra, you're not following the "advice inspired by Jack Bogle".
If you do it in an extremely low-cost way (not through AQR/Cliff Asness) you may not be too far off, but it's still off...
Last edited by JoMoney on Fri May 22, 2020 8:34 pm, edited 1 time in total.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosophy

Post by arcticpineapplecorp. » Fri May 22, 2020 8:31 pm

Taleb does not believe in the Gaussian Bell Curve.

That's the entirety of what I learned reading one of his books.

That and he seemed very smug in his writing as I recall. As if no one knew as much as he did. His tone rubbed me wrong.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by redfan11 » Fri May 22, 2020 8:39 pm

rbaldini wrote:
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.
Thanks that was a fun read! I read his first book Fooled by Randomness. It was a great read but the guy is so full of himself and this quote perfectly captures it. But of course Taleb is a billionaire fund manager. And I am pinching pennies on index funds...

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

Post by arcticpineapplecorp. » Fri May 22, 2020 8:46 pm

redfan11 wrote:
Fri May 22, 2020 8:39 pm
rbaldini wrote:
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.
Thanks that was a fun read! I read his first book Fooled by Randomness. It was a great read but the guy is so full of himself and this quote perfectly captures it. But of course Taleb is a billionaire fund manager. And I am pinching pennies on index funds...
But he has to deal with a thousand cuts a day for the one big payoff. As Malcolm Gladwell put it:
At Empirica, by contrast, every day brings a small but real possibility that they’ll make a huge amount of money in a day; no chance that they’ll blow up; and a very large possibility that they’ll lose a small amount of money... If you watched Taleb closely that day, you could see the little ways in which the steady drip of losses takes a toll. He glanced a bit too much at the Bloomberg. He leaned forward a bit too often to see the daily loss count. He succumbs to an array of superstitious tics...
source: https://www.newyorker.com/magazine/2002 ... blowing-up
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosophy

Post by AerialWombat » Fri May 22, 2020 8:53 pm

.....
Last edited by AerialWombat on Sat May 23, 2020 6:25 am, edited 1 time in total.

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

Post by heyyou » Fri May 22, 2020 9:27 pm

Grog's comments, several posts above, are more articulate than mine.

Taleb's hedge fund investors lost money because the market did not fall soon enough, before they tired of paying him to short a rising market. His personal strategy did not work at the retail level for public investors.

His comments make good press stories because they are so unconventional, forecasting gloom during long bull markets which are making money for Main Street investors. Taleb is like a top pro athlete saying "Just do what I do, to get the same results that I do."

A metric that matters is, can retail investors base their retirements on using Taleb's method? Thus the divide between his method and Bogleheads' suggestions with their far lower rewards for exponentially less risk.

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

Post by JoMoney » Fri May 22, 2020 9:47 pm

This thread seems to have taken to bashing Taleb, but his beef was directed at Fama, and AQR's Cliff Asness -who is also a pompous loud-mouth billionaire hedge-fund guy.
We can talk about Taleb's active style failures, but Cliff Asness's and the other "factor" style advocates are certainly worthy of criticism too. It wasn't Taleb telling people they could load up on small-value stocks and expect a "risk premium"... (and it certainly wasn't in Bogle's philosophy either)
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by JBTX » Fri May 22, 2020 11:46 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
Comparing the lottery to what Taleb is doing is probably apples and oranges. I am going to guess that Taleb is taking advantage of people's natural risk aversion and tendency to ignore tail risk to identify long shot opportunities with a positive expected value. It could be that or it could be luck, we just don't know.

Winning multiple payouts in a lottery is luck pure and simple. There is no rational quantitative reason to invest in negative expected value long shots. There may be an emotional or entertainment value in doing so, and there's nothing wrong with that, but that doesn't make buying one lottery ticket a smart investment because you might win big. There's probably just as likely of odds that you'll die in a car accident driving to the store to buy the lottery ticket.

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

Post by JBTX » Sat May 23, 2020 12:00 am

rbaldini wrote:
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.
Holy crap that was priceless. I will admit to not reading Talebs books, so I am in no position to assess opinions on his writings. What little bit I've read of him and his philosophies there is no doubt he is a really bright guy and brings a completely unconventional way of thinking that at times is refreshing to read. But I tell you it is tough to get past the childlike antics and arrogance and the social media stuff.

I can't say that I've ever read such a biting and well written verbal assassination as the one I just read by Harris. Normally you could say such ramblings are petty but in this case it seems well justified. I read it to my wife who is a Sam Harris fan and we were both laughing hysterically. I havent laughed that hard in a long time.

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

Post by Alchemist » Sat May 23, 2020 12:07 am

JoMoney wrote:
Fri May 22, 2020 9:47 pm
This thread seems to have taken to bashing Taleb, but his beef was directed at Fama, and AQR's Cliff Asness -who is also a pompous loud-mouth billionaire hedge-fund guy.
We can talk about Taleb's active style failures, but Cliff Asness's and the other "factor" style advocates are certainly worthy of criticism too. It wasn't Taleb telling people they could load up on small-value stocks and expect a "risk premium"... (and it certainly wasn't in Bogle's philosophy either)
This is a good point. I never understood why so many Bogleheads give Asness and AQR a pass on being so wrong (and expensive!).

Although it is refreshing to see yourself and others eloquently correct the common misconception that Boglehead ideas or Indexing are in any way predicated on EMH.

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

Post by oldfort » Sat May 23, 2020 12:25 am

What I got out of Taleb, which doesn't necessarily conflict with Bogleheads general philosophy is A) be prepared for negative shocks, the Great Recession and COVID-19 have hammered home this lesson, B) be antifragile, so have low levels of leverage, and C) statistically investing processes may be both non-Gaussian and non-stationary.

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

Post by michoco911 » Sat May 23, 2020 12:39 am

senex wrote:
Fri May 22, 2020 12:15 pm
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.
Nicely said. Cannot agree more.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by steve321 » Sat May 23, 2020 12:39 am

grog wrote:
Fri May 22, 2020 5:19 pm
I view modern financial theories as completely inessential to the indexing philosophy. The key ideas are simply the "humble rules of arithmetic" and the "costs matter" argument. Investors in aggregate must earn the aggregate market return less costs. This is an arithmetic truism and does not depend on statistical assumptions or anything else. Bogle said the best strategy is to take the average market return and minimize the costs. This argument doesn't really depend on modern portfolio theory, mean-variance optimization, or even the efficient markets hypothesis. You can dismiss of all these things and still favor index funds.

Asness's company sells expensive factor funds that while "passive" in the sense of being largely algorithmic are active funds for all intents and purposes. Not very Boglehead. Asness is indeed heavily committed to the modern financial literature, but again that stuff is strictly optional in the Boglehead approach.

I don't recall having seen Taleb comment specifically on indexing. But in general he seems to view the system as overly "fragile" (one of his buzzwords). To the extent I've seen practical investment advice from him, it seems to be to go long volatility and make money when things blow up, overall a pretty bearish view. That might be the main difference Bogleheads is what I would call "long-term bullish." I agree with him (and many others) that there is a fragility to the current system with its heavy use of leverage and financialization and the asymmetry of private gains and socialized costs, especially true in the "too big to fail" era. But at the end of the day I am long-term bullish. I think most businesses are still fundamentally productive and it's a good bet to go long stocks. And I think buying and holding stocks will probably make more over time than way out-of-the-money put options (which contrary to Taleb, are not dramatically underpriced but rather seem to sell at a kind of insurance premium).

A possible Taleb-inspired critique of indexing one could make is that because the index investor is investing a tiny percentage in every company with complete indifference, it divorces the money from any knowledge of or interaction with the underlying business. In terms of the principal-agent problem, you could say the principals are not paying attention and are relying on a few proxies to govern the companies. And this raises the question of how to govern the proxies who in turn govern company management. This would seem to go against Taleb's "skin in the game" mantra. Now people have a little bit of skin in a lot of companies and don't really care about a single one of em. They essentially have skin in "the market." There may be something to this type of critique. I don't know. Regardless, given current circumstances, I think the optimal strategy at the individual level is highly diversified index investing.
These are all interesting points, thank you. When you say:
Regardless, given current circumstances, I think the optimal strategy at the individual level is highly diversified index investing.
By 'current circumstances' you mean specifically today's situation? I am asking because I saw interviews of Ray Dalio where he said that today more than ever it's important to distinguish between some stocks who will fare well and those who won't. (Though probably that's something professional investors have more mean to do.)
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosophy

Post by steve321 » Sat May 23, 2020 12:43 am

JoMoney wrote:
Fri May 22, 2020 9:47 pm
It wasn't Taleb telling people they could load up on small-value stocks and expect a "risk premium"... (and it certainly wasn't in Bogle's philosophy either)
Hang on, what about the Larry portfolio then? Larry Swedroe is also in favor of small value, and his contributions have been highly valued on this board.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by LilyFleur » Sat May 23, 2020 2:21 am

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.
Maybe this Taleb fella is being paid by the word, like Charles Dickens was? :mrgreen:

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

Post by BJJ_GUY » Sat May 23, 2020 3:13 am

junior wrote:
Fri May 22, 2020 1:59 pm
KlangFool wrote:
Fri May 22, 2020 1:55 pm
junior wrote:
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


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?
If you read further up the page, I had posted the links. He was right about 2008 and 2020 (this year).

KlangFool
As far as I can tell you posted two paywalled articles from journalists saying he made a lot of money. Are his results actually available online so you can verify what the journalists claim is true?
Universa runs a bunch of separate accounts with different mandates, so there is no official 'fund performance' to report. That said, the performance quoted periodically is a bit misleading as the returns are calculated off of the small amount required for an investors desired notional exposure.

Depending on the amount of protection the investor wants in a -20% S&P 500 environment (for example), the manager requires a fraction of capital for margin maintenance (basically). So, importantly, cash moves between investor and the fund/manager more often than is typical with a traditional fund investment. This makes performance calculation further challenging and impossible to assume broadly.

That said, losses (for this type of strategy) can be pretty significant during quarters/years when volatility is low, and dropping -- often when the market is moving up or just without large movements. Buying OTM options while selling ATM options often results in losses in excess of the budgeted amount. For example, to say you'll invest just 1% per year in this strategy, without spending any more $ to maintain exposure will result in underinvestment compared to ex ante allocation decisions. So the $1 a year lottery ticket analogy doesn't really work.

By the way, for some reason no one has mentioned this, but Taleb is not a fund manager. He is an advisor to Universa, which likely means he shares in the economics of the management company in exchange for name recognition -- and potentially some involvement in the early days.

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

Post by steve321 » Sat May 23, 2020 3:16 am

arcticpineapplecorp. wrote:
Fri May 22, 2020 8:46 pm
redfan11 wrote:
Fri May 22, 2020 8:39 pm
rbaldini wrote:
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.
Thanks that was a fun read! I read his first book Fooled by Randomness. It was a great read but the guy is so full of himself and this quote perfectly captures it. But of course Taleb is a billionaire fund manager. And I am pinching pennies on index funds...
But he has to deal with a thousand cuts a day for the one big payoff. As Malcolm Gladwell put it:
At Empirica, by contrast, every day brings a small but real possibility that they’ll make a huge amount of money in a day; no chance that they’ll blow up; and a very large possibility that they’ll lose a small amount of money... If you watched Taleb closely that day, you could see the little ways in which the steady drip of losses takes a toll. He glanced a bit too much at the Bloomberg. He leaned forward a bit too often to see the daily loss count. He succumbs to an array of superstitious tics...
source: https://www.newyorker.com/magazine/2002 ... blowing-up
he does not seem to concerned nowadays about his losses when the market goes up. In fact he was one of the first to alert to the dangers of Covid 19 and suggest that preventive measures should be taken urgently.

https://www.academia.edu/41743064/Syste ... rus_A_Note

If they had listened to him the crisis would not have occurred and his strategy would not have made the profits they made last March.
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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