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

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

Post by BJJ_GUY » Sat May 23, 2020 3:26 am

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
KlangFool,

I agree with your thought, and the back of the envelope math - but only if the variables were correct.

For a tail hedge fund to even post 30x returns (highly optimistic, let alone the upper end of your range), it will end up costing more than than the budgeted 1%. To maintain notional exposure, equal to 1% of your total capital, to this type of strategy over a one year period, will end up costing more than 1% per year, often enough.

Not saying the efficacy of the strategy is bad, or no good. Only saying that I think - on average - the cost will be greater than expected, and the upside when markets drawdown is not likely to reach the 30-100x range with confidence.

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

Post by Uncorrelated » Sat May 23, 2020 6:05 am

Multiple bogleheads are saying "in aggregate investors receive market returns". I'm not sure if that is true, but the point I want to make here is that it's irrelevant.

It is trivial to beat the market. A 110% leveraged stock position will do. Why is not everybody using leveraged stock positions? Ultimately, the right stock allocation depends on your personal risk tolerance. Young investors with large human capital are making a rational choice to purchase leveraged stocks. Older investors are making a rational choice by purchasing safer investments that better align with their risk tolerance. You could say that if a young person borrows from a retired person, both individuals obtain a better investment outcome.

The stock market can be seen as a big insurance market. Bogle takes the 'costs matter' approach, as far as investing goes, this approach is very reliable and does not depend on any particular market estimates. But it's certainly possible to do better. It has been shown that there are multiple independent risk factors, if your personal risk tolerance differs from the market risk aggregate, then it is possible that tilting towards a particular factor results in improved probability distribution of outcomes. The same argument holds true for options. Options aren't priced in a risk-neutral vacuum. Option buyers/sellers are real people/companies with some risk tolerance. If you believe that your risk tolerance differs significantly from the market, buying or selling options can result in an improved probability distribution of outcomes.

This is not a mispricing argument. It works even if the market is efficient and options are accurately priced.

Taleb's argument however, appears to imply options are mispriced and that tail events are impossible to predict. Yet, the fund he's an advisor for deals in these securities. The irony.



A slight tangent to the lottery ticket discussion: buying lottery tickers can be rational. Suppose that you have $10k left and doctors have diagnosed you with an illness that costs $5m to cure, and if uncured will result in immediate death next week. In this situation, buying lottery tickets with a negative expected value may not be a bad idea.

The punchline, as usual in my posts, is that the expected return is a poor measure of investment quality. Determining the right investment choices requires careful analysis on the impact of the probability distribution of outcomes on your personal life circumstances. In some cases, the best investment is one that has a negative expected return.

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

Post by bgf » Sat May 23, 2020 6:15 am

arcticpineapplecorp. wrote:
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.
He does of course. He describes Mediocristan where the normal bell curve works very well, and Extremistan, where it does not. He's correct.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

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

Post by BJJ_GUY » Sat May 23, 2020 7:02 am

Uncorrelated wrote:
Sat May 23, 2020 6:05 am
Taleb's argument however, appears to imply options are mispriced and that tail events are impossible to predict. Yet, the fund he's an advisor for deals in these securities. The irony
I don't understand where there is irony. His point is that you can find mispriced options for technical, structural, and behavioral reasons, among others. The best institutional investors always seek out markets that are less efficient, for whatever reason, and therefore offer value for the skilled manager (understanding that 95% of the folks in the group don't believe in the premise of skill/edge in the first place).

There is nuance to the idea that tail events are impossible to predict (and Universa works with investors based on valuations etc. increasing the likelihood of market crashes etc.), however, for the sake of the point - black swans, and exact timing of drawdowns certainly can't be predicted. So Agreed.

But, Taleb, and the guy who actually manages Universa, have always made the point that investors should allocate a small % of total capital to a tail hedge (insurance) strategy like theirs. They make the argument that this allows one to hold a portfolio almost entirely made up of long-only equity as the tail-hedge will minimize the biggest drawdowns (more effectively than readily available retail options like stock/bond mixes). Basically, you have higher upside potential with more equity exposure, but similar -or better- downside protection with the tail-hedge (compared to a 60/40 etc.). Because volatility does impact actual returns (geometric), the idea is that this mix results in a higher compound return.

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

Post by steve321 » Sat May 23, 2020 7:08 am

BJJ_GUY wrote:
Sat May 23, 2020 7:02 am

But, Taleb, and the guy who actually manages Universa, have always made the point that investors should allocate a small % of total capital to a tail hedge (insurance) strategy like theirs.
yeah but you need to invest 25M minimum in Universa so it's not for most of us. Also what you say about valuations is complicated for retail investors. May I ask, do you do this yourself, and if so do you use put options? (I've started researching them after some answers I got in a parallel post).
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosophy

Post by BJJ_GUY » Sat May 23, 2020 7:14 am

steve321 wrote:
Sat May 23, 2020 7:08 am
BJJ_GUY wrote:
Sat May 23, 2020 7:02 am

But, Taleb, and the guy who actually manages Universa, have always made the point that investors should allocate a small % of total capital to a tail hedge (insurance) strategy like theirs.
yeah but you need to invest 25M minimum in Universa so it's not for most of us. Also what you say about valuations is complicated for retail investors. May I ask, do you do this yourself, and if so do you use put options? (I've started researching them after some answers I got in a parallel post).
I do not trade like this. I'm a simple indexer for the most part. I don't think retail investors can replicate the strategy and I'd highly recommend not trying. I was simply trying to shed light on the thesis, assumptions, etc. where I felt I could add some missing detail.

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

Post by JoMoney » Sat May 23, 2020 7:31 am

steve321 wrote:
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.
It's always good to have people with different opinions around, and Larry did make some good contributions... but the "Larry portfolio" wasn't advice inspired by John Bogle. Frankly, Mr.Bogle advised against such strategies, and quite a few on here would lambaste Larry over it, it might be why he doesn't come around here anymore.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosophy

Post by Uncorrelated » Sat May 23, 2020 8:04 am

BJJ_GUY wrote:
Sat May 23, 2020 7:02 am
Uncorrelated wrote:
Sat May 23, 2020 6:05 am
Taleb's argument however, appears to imply options are mispriced and that tail events are impossible to predict. Yet, the fund he's an advisor for deals in these securities. The irony
I don't understand where there is irony. His point is that you can find mispriced options for technical, structural, and behavioral reasons, among others. The best institutional investors always seek out markets that are less efficient, for whatever reason, and therefore offer value for the skilled manager (understanding that 95% of the folks in the group don't believe in the premise of skill/edge in the first place).

There is nuance to the idea that tail events are impossible to predict (and Universa works with investors based on valuations etc. increasing the likelihood of market crashes etc.), however, for the sake of the point - black swans, and exact timing of drawdowns certainly can't be predicted. So Agreed.

But, Taleb, and the guy who actually manages Universa, have always made the point that investors should allocate a small % of total capital to a tail hedge (insurance) strategy like theirs. They make the argument that this allows one to hold a portfolio almost entirely made up of long-only equity as the tail-hedge will minimize the biggest drawdowns (more effectively than readily available retail options like stock/bond mixes). Basically, you have higher upside potential with more equity exposure, but similar -or better- downside protection with the tail-hedge (compared to a 60/40 etc.). Because volatility does impact actual returns (geometric), the idea is that this mix results in a higher compound return.
The irony is that Taleb makes investment advice that requires that the market consistently and substantially under-estimates the probability of left tails. But at the same time, Taleb states that there is not enough data to predict the probability of left tails. Under these conditions, what basis is there to assume that the market under-estimates tail risk probability?

There are ways to profit off options trading in an efficient market, Taleb don't appear to use those.

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

Post by BJJ_GUY » Sat May 23, 2020 8:26 am

Uncorrelated wrote:
Sat May 23, 2020 8:04 am

The irony is that Taleb makes investment advice that requires that the market consistently and substantially under-estimates the probability of left tails. But at the same time, Taleb states that there is not enough data to predict the probability of left tails. Under these conditions, what basis is there to assume that the market under-estimates tail risk probability?

There are ways to profit off options trading in an efficient market, Taleb don't appear to use those.
I don't think that (your interpretation of his thesis) is necessarily true. For example, a tail hedge strategy might provide structural protection to the tune of 6x upside if the SPX loses 20%. Let's assume that's the naive return of a totally systematic approach, without any consideration for 'mis-primings.' That 6x upside at just over a 3% position would make a 97/3 blend flat during that 20% drawdown period.

Now, let's assume there is some degree of inefficiency in the options markets. They might be able to turn 6x upside into 8x or 10x upside. On the flip side, tail strategies don't just buy puts, but also fund OTM options with ATM options. So, again, any value-add potential would also provide for a reduction in the cost-drag from buying the insurance exposure.

The basis to assume the 'mispriced' options is probably a bit more than what this platform is for. But, one example is the fact that skew is often steep providing relative value (mis-pricings) between ATM and OTM options of the same strike and tenor due to the fact that most market participants are concerned with short term performance, and seek to protect against immediate price movements. This can be hedge fund managers managing their monthly NAV, or investment banks protecting their short term PNL. Either way, this is one reason why ATM options tend to be rich, while OTM options - at times - underpriced. Of course, this is a really long debatable topic that can go in a ton of directions, but that is one simple example.

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

Post by nisiprius » Sat May 23, 2020 9:42 am

JoMoney wrote:
Sat May 23, 2020 7:31 am
steve321 wrote:
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.
It's always good to have people with different opinions around, and Larry did make some good contributions... but the "Larry portfolio" wasn't advice inspired by John Bogle. Frankly, Mr.Bogle advised against such strategies, and quite a few on here would lambaste Larry over it, it might be why he doesn't come around here anymore.
The forum isn't monolithic. The forum has always hosted many and long discussions of philosophies other than John C. Bogle's. It's pretty clear that Bogle did not espouse factor investing, and factor advocates find Bogle's essay, The Telltale Chart, to be annoying. His thesis, carefully articulated and illustrated with data, is more or less this: due to mean reversion, it is unwise and fruitless to overweight small, value, or anything else.
Place me squarely in the camp of the contrarians who don’t accept the inherent superiority of value strategies over growth strategies. I’ve been excoriated for my views, but I’m comforted by this reported exchange between Dr. Fama and a participant at a recent investment conference: “What do you say to otherwise intelligent people like Jack Bogle who examine this same data and conclude that there is no size or value premium?” His response: “How far are they from the slide? If I get far enough away, I don’t see it either . . . Whether you decide to tilt towards value depends on whether you are willing to bear the associated risk . . . The market portfolio is always efficient . . . For most people, the market portfolio is the most sensible decision.”
Right or wrong, that's what Bogle thought--and it is not what Larry Swedroe thinks.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by Zhen » Sat May 23, 2020 10:04 am

bgf wrote:
Fri May 22, 2020 11:53 am
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.
Well said!

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

Post by NoRegret » Sat May 23, 2020 10:13 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 follow both on Twitter. NNT is brilliant and well above my head most of the time. He is also a huge a$$. Asness has the moral high ground in this “debate”. You can’t help but feeling his pain with value underperformance.

Pity that in managing my own portfolio I’m more apt to follow NNT. As for value underperformance I subscribe to Mike Green’s money flow explanation and don’t see it reversing any time soon. Now that would be an interesting discussion for Bogleheads.

Cheers, NR
Last edited by NoRegret on Sat May 23, 2020 10:24 am, edited 1 time in total.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosophy

Post by steve321 » Sat May 23, 2020 10:13 am

nisiprius wrote:
Sat May 23, 2020 9:42 am
Whether you decide to tilt towards value depends on whether you are willing to bear the associated risk . . . The market portfolio is always efficient . . . For most people, the market portfolio is the most sensible decision.”[/quote]

Right or wrong, that's what Bogle thought--and it is not what Larry Swedroe thinks.
[/quote]

Hang on man, I think Swedroe would also say that small value is more risky and so it ought to have > returns. Where he would disagree is that for him it's better to have a barbell porfolio (a big safe chunk and then a small risky part like SCV) because it mitigates risks dues to fat tail events, which is kind of relevant to the subject of Taleb too.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosophy

Post by crystalbank » Sat May 23, 2020 10:14 am

Taleb is usually right about things and if you can get past his demeanor, he has a lot to offer. I consider him more of the philosopher type rather than investment advisor.

I read all his books and he doesn't really preach any particular style of investing. He observes that investors especially in the stock markets take a lot more risk than they know or signed up for, which only becomes obvious in hind sight after a blow up. Vast majority of investors underestimate their risk exposure which creates a lot of opportunities for some shrewd market players (say a certain 'Fat Tony'). He doesn't really advocate other people follow his style of trading but instead want his readers to be more aware of the risk they're exposed to.

Like some one else mentioned earlier in the thread - Taleb got it right in 1987 (the crash which made him Financially Independent), 2008 and the 2020 crash. There is a possibility that he is always short and hence always gets it right whenever the market dives. Maybe, but Taleb was right on the money about the current pandemic ever since the news first broke out. Had governments all over the world heeded his advice we would've saved many lives and would've been much cheaper than shutting out the global economy at once.

Taleb, Mandelbrot books are a must read for everyone in my view.

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

Post by steve321 » Sat May 23, 2020 10:20 am

NoRegret wrote:
Sat May 23, 2020 10:13 am
Assess has the moral high ground in this “debate”.
I think exactly the opposite. Asness seems totally fake to me. He is usually filled with a sense of superiority and contempt for other human beings, but since he can't use that tone much in this exchange (for a start his funds have clearly done very badly, as Taleb points out), he has tried to gain the sympathy of the public. But he makes no valid technical arguments in response to Taleb's.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosophy

Post by NoRegret » Sat May 23, 2020 10:28 am

steve321 wrote:
Sat May 23, 2020 10:20 am
NoRegret wrote:
Sat May 23, 2020 10:13 am
Assess has the moral high ground in this “debate”.
I think exactly the opposite. Asness seems totally fake to me. He is usually filled with a sense of superiority and contempt for other human beings, but since he can't use that tone much in this exchange (for a start his funds have clearly done very badly, as Taleb points out), he has tried to gain the sympathy of the public. But he makes no valid technical arguments in response to Taleb's.
First of all, sorry about misspelling Asness, corrected in the OP.

By moral high ground I meant being more rational and courteous. I didn’t say he had the technical high ground. I thought that was clear in stating what I do with my own money.

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

Post by oldfort » Sat May 23, 2020 12:12 pm

steve321 wrote:
Sat May 23, 2020 10:13 am
Hang on man, I think Swedroe would also say that small value is more risky and so it ought to have > returns. Where he would disagree is that for him it's better to have a barbell porfolio (a big safe chunk and then a small risky part like SCV) because it mitigates risks dues to fat tail events, which is kind of relevant to the subject of Taleb too.
Swedroe's advice has changed a lot of the years. He supports selling reinsurance and being short volatility, which are bets tail events won't happen.

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

Post by steve321 » Sat May 23, 2020 12:20 pm

oldfort wrote:
Sat May 23, 2020 12:12 pm
steve321 wrote:
Sat May 23, 2020 10:13 am
Hang on man, I think Swedroe would also say that small value is more risky and so it ought to have > returns. Where he would disagree is that for him it's better to have a barbell porfolio (a big safe chunk and then a small risky part like SCV) because it mitigates risks dues to fat tail events, which is kind of relevant to the subject of Taleb too.
Swedroe's advice has changed a lot of the years. He supports selling reinsurance and being short volatility, which are bets tail events won't happen.
yeah excellent point, didn't think of that one. But the Larry portfolio is instead designed to protect you against tail events IMO. So yes I guess his opinion has changed; that's probably because he has great pedagogical qualities but relies on other people's research to make up his mind.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosophy

Post by oldfort » Sat May 23, 2020 12:23 pm

steve321 wrote:
Sat May 23, 2020 12:20 pm
oldfort wrote:
Sat May 23, 2020 12:12 pm
steve321 wrote:
Sat May 23, 2020 10:13 am
Hang on man, I think Swedroe would also say that small value is more risky and so it ought to have > returns. Where he would disagree is that for him it's better to have a barbell porfolio (a big safe chunk and then a small risky part like SCV) because it mitigates risks dues to fat tail events, which is kind of relevant to the subject of Taleb too.
Swedroe's advice has changed a lot of the years. He supports selling reinsurance and being short volatility, which are bets tail events won't happen.
yeah excellent point, didn't think of that one. But the Larry portfolio is instead designed to protect you against tail events IMO. So yes I guess his opinion has changed; that's probably because he has great pedagogical qualities but relies on other people's research to make up his mind.
If you are referring to the original Larry portfolio, something like, 30% SV and 70% bonds, Larry himself doesn't believe in it anymore.

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

Post by steve321 » Sat May 23, 2020 12:28 pm

oldfort wrote:
Sat May 23, 2020 12:23 pm
steve321 wrote:
Sat May 23, 2020 12:20 pm
oldfort wrote:
Sat May 23, 2020 12:12 pm
steve321 wrote:
Sat May 23, 2020 10:13 am
Hang on man, I think Swedroe would also say that small value is more risky and so it ought to have > returns. Where he would disagree is that for him it's better to have a barbell porfolio (a big safe chunk and then a small risky part like SCV) because it mitigates risks dues to fat tail events, which is kind of relevant to the subject of Taleb too.
Swedroe's advice has changed a lot of the years. He supports selling reinsurance and being short volatility, which are bets tail events won't happen.
yeah excellent point, didn't think of that one. But the Larry portfolio is instead designed to protect you against tail events IMO. So yes I guess his opinion has changed; that's probably because he has great pedagogical qualities but relies on other people's research to make up his mind.
If you are referring to the original Larry portfolio, something like, 30% SV and 70% bonds, Larry himself doesn't believe in it anymore.
oh, didn't know that. Indeed I was referring to that, so you agree that the advantage of that portfolio relative to say 60/40 is that you mitigate the risks associated with fat tails? You have a kind of barbell in Taleb's sense: 70% very safe and 30% very risky.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosophy

Post by heyyou » Sat May 23, 2020 12:35 pm

The focus seems to be on doing better than the long term average returns of the stock market, while many of us untutored investors have become comfortable financially by long term, diligent saving, with investing for market average returns while enduring the periodic market drops.

Seems like both Taleb and Asness want more than just average returns, and are on opposite ends of the spectrum of where to take the extra risk. Most of us here are on the Bogle bus, while those two are advocates of their own self-designed high performance sports cars. All of us have different views of how much, is enough. We are just spectators of their personal competition.

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

Post by HootingSloth » Sat May 23, 2020 12:52 pm

At least to me, there seems to be a disconnect between Taleb and Mandelbrot's narrative books and the actual academic financial literature. If you read Taleb or Mandelbrot, you might get the impression that everyone goes around blithely assuming that changes in the prices of financial assets follow a normal distribution.

But when I have looked at actual literature, I generally have found agreement that the normal distribution is not a good fit for stock returns. I have seen that the machinery of MPT is readily extended to situations with "fat tails," at least as long as price changes follow a distribution with finite variance (and with more difficulty if conditions need to be relaxed further). In reading Mandelbrot's more quantitative works, they seem to generally be premised on the idea that infinite variance distributions ("stable Paretian distributions") must be used to model the prices of financial assets. But there seems to be a robust literature that has tried to test this hypothesis empirically, which as far as I know uniformly shows that fat-tailed but finite-variance distributions (like the Student's t distribution) more accurately describe the actual history of prices. Of course, no one knows what the future will bring. It seems that rather than a conspiracy of silence, the reason that Fama abandoned the work that he undertook in his PhD thesis supervised by Mandelbrot is simply that it turned out not to be a good fit for reality.

Admittedly, Taleb's arguments are not the same as Mandelbrot's. Unfortunately, his more quantitative writings have struck me as uninterested in making mathematical arguments that are aimed at persuading. Instead, he gives an impression of "showing off." Maybe that is because he is so much smarter than everyone else. In my experience, however, an unwillingness to clearly explain arguments from first principles more often is a sign that the person is BSing. I also think that a little skepticism may be warranted for someone who makes his living off of his public image as an iconoclast. It does not mean that he is wrong, but it gives me very little confidence that he is right.

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

Post by Horton » Sat May 23, 2020 1:33 pm

This is case in point why I try to avoid social media. It rarely provokes deep meaningful thought. It mostly triggers arguments and frustration.

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

Post by FIREchief » Sat May 23, 2020 1:42 pm

senex wrote:
Fri May 22, 2020 12:15 pm
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)
This is very well stated. I'm 100% US because I have greater confidence in the first two remaining valid for US companies.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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

Post by bgf » Sat May 23, 2020 1:48 pm

HootingSloth wrote:
Sat May 23, 2020 12:52 pm
At least to me, there seems to be a disconnect between Taleb and Mandelbrot's narrative books and the actual academic financial literature. If you read Taleb or Mandelbrot, you might get the impression that everyone goes around blithely assuming that changes in the prices of financial assets follow a normal distribution.
You're probably right about the "feel" of Talebs polemics against academia (its been awhile since I've read his books) but I agree with you that there is real tension there. Clearly academics aren't idiots and clearly there is more to making money in the markets than being smart and knowing theory.

This is why I enjoyed reading about Ed Thorp so much. He's smart enough to understand the mathematics such that he knew why and under what circumstances his model was likely to fail. He was also enough of a practical problem solver that he could put his models into use in real markets to make money. From what I recall, he worked out the correct pricing of convertible warrants before the black Scholes option pricing model became famous. Most importantly, as an engineer, he understood the assumptions and points of failure in his model, and allowed himself a margin of error in actual trading. He then made a ton of money.

Contrast the well known LTCM, where their margin of error was insufficient and their modeling didn't allow for the "irrationality" of traders moving markets away from their positions when they smelled blood. They blew up. Ultimately people move markets, and over short periods prices dislocate from any rational model, even logic. Eg, see 3com and palm. Forget economic modeling, it literally made zero sense. It didn't even make sense based on simple arithmetic.

Not sure why I went off on this tangent now...
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosophy

Post by BJJ_GUY » Sat May 23, 2020 2:48 pm

bgf wrote:
Sat May 23, 2020 1:48 pm
HootingSloth wrote:
Sat May 23, 2020 12:52 pm
At least to me, there seems to be a disconnect between Taleb and Mandelbrot's narrative books and the actual academic financial literature. If you read Taleb or Mandelbrot, you might get the impression that everyone goes around blithely assuming that changes in the prices of financial assets follow a normal distribution.
You're probably right about the "feel" of Talebs polemics against academia (its been awhile since I've read his books) but I agree with you that there is real tension there. Clearly academics aren't idiots and clearly there is more to making money in the markets than being smart and knowing theory.

This is why I enjoyed reading about Ed Thorp so much. He's smart enough to understand the mathematics such that he knew why and under what circumstances his model was likely to fail. He was also enough of a practical problem solver that he could put his models into use in real markets to make money. From what I recall, he worked out the correct pricing of convertible warrants before the black Scholes option pricing model became famous. Most importantly, as an engineer, he understood the assumptions and points of failure in his model, and allowed himself a margin of error in actual trading. He then made a ton of money.

Contrast the well known LTCM, where their margin of error was insufficient and their modeling didn't allow for the "irrationality" of traders moving markets away from their positions when they smelled blood. They blew up. Ultimately people move markets, and over short periods prices dislocate from any rational model, even logic. Eg, see 3com and palm. Forget economic modeling, it literally made zero sense. It didn't even make sense based on simple arithmetic.

Not sure why I went off on this tangent now...
It's not a tangent to me, but rather a great point. Academics rarely cross-over to successful investors in practice. The best understand the academic theories etc., but are by no means wed to, or reliant upon, models and inflexible assumptions. Even the very best quant firms out there (RenTech, Two Sigma, DE Shaw etc.) adjust their models for real world crisis, during which relationships between investment instruments break down (i.e., what happened to LTCM when off-the-run Treasuries traded through on-the-run inverting their arbitrage trade, for example).

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

Post by VictoriaF » Sat May 23, 2020 4:57 pm

steve321 wrote:
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?
In 2010, I corresponded with Taleb regarding my paper about Black Swans in the continuity of government operations. After reviewing my paper, he added it to the list of publications citing his work. After that, I met him in person on two occasions, and both times I was more interested in his work than in a discussion of the Bogleheads philosophy.

In The Black Swan, Taleb defines a prudent investment approach as a barbell:
90% the safest possible investments, e.g., inflation adjusted Federal bonds
10% highly speculative investments with a large upside.

This barbell would not fit the Bogleheads philosophy of investing.

On the other hand, Taleb's philosophy and Bogleheads' philosophy are congruent in the need to live below one's means, saving, and creating a large financial safety margin.

Unfortunately, I have not seen Taleb in person for eight years. Recently, I sent him a message and he did not reply. I hope he'll have another book tour that will bring him to D.C.

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

Post by randomguy » Sat May 23, 2020 6:19 pm

crystalbank wrote:
Sat May 23, 2020 10:14 am

Like some one else mentioned earlier in the thread - Taleb got it right in 1987 (the crash which made him Financially Independent), 2008 and the 2020 crash. There is a possibility that he is always short and hence always gets it right whenever the market dives. Maybe, but Taleb was right on the money about the current pandemic ever since the news first broke out. Had governments all over the world heeded his advice we would've saved many lives and would've been much cheaper than shutting out the global economy at once.

Taleb, Mandelbrot books are a must read for everyone in my view.
Was he right on the money with his calls for SARS, H1N1, and so on? It isn't clear to me as a layperson when exactly it became clear that this was going to be a much worse problem. It is easy looking back now to say well those prior pandemics weren't a big deal but I remember the doom and gloom about them was the same in the first months.

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

Post by crystalbank » Sat May 23, 2020 7:00 pm

randomguy wrote:
Sat May 23, 2020 6:19 pm
crystalbank wrote:
Sat May 23, 2020 10:14 am

Like some one else mentioned earlier in the thread - Taleb got it right in 1987 (the crash which made him Financially Independent), 2008 and the 2020 crash. There is a possibility that he is always short and hence always gets it right whenever the market dives. Maybe, but Taleb was right on the money about the current pandemic ever since the news first broke out. Had governments all over the world heeded his advice we would've saved many lives and would've been much cheaper than shutting out the global economy at once.

Taleb, Mandelbrot books are a must read for everyone in my view.
Was he right on the money with his calls for SARS, H1N1, and so on? It isn't clear to me as a layperson when exactly it became clear that this was going to be a much worse problem. It is easy looking back now to say well those prior pandemics weren't a big deal but I remember the doom and gloom about them was the same in the first months.
Taleb suggests that it's better to be over prepared than under prepared when it comes to 'left tail' risk events, so I won't be surprised if he had similar views about prior pandemics like SARS etc. He even co-wrote a paper about dealing with pandemics (A much less technical note can be found here).

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

Post by steve321 » Sun May 24, 2020 2:06 am

VictoriaF wrote:
Sat May 23, 2020 4:57 pm
steve321 wrote:
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?
In 2010, I corresponded with Taleb regarding my paper about Black Swans in the continuity of government operations. After reviewing my paper, he added it to the list of publications citing his work. After that, I met him in person on two occasions, and both times I was more interested in his work than in a discussion of the Bogleheads philosophy.

In The Black Swan, Taleb defines a prudent investment approach as a barbell:
90% the safest possible investments, e.g., inflation adjusted Federal bonds
10% highly speculative investments with a large upside.

This barbell would not fit the Bogleheads philosophy of investing.

On the other hand, Taleb's philosophy and Bogleheads' philosophy are congruent in the need to live below one's means, saving, and creating a large financial safety margin.

Unfortunately, I have not seen Taleb in person for eight years. Recently, I sent him a message and he did not reply. I hope he'll have another book tour that will bring him to D.C.

Victoria
Thanks.
The Larry portfolio is probably the closest I have seen on Bogleheads to this:
In The Black Swan, Taleb defines a prudent investment approach as a barbell:
90% the safest possible investments, e.g., inflation adjusted Federal bonds
10% highly speculative investments with a large upside.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by JoMoney » Sun May 24, 2020 7:25 am

steve321 wrote:
Sun May 24, 2020 2:06 am
...
The Larry portfolio is probably the closest I have seen on Bogleheads to this:
In The Black Swan, Taleb defines a prudent investment approach as a barbell:
90% the safest possible investments, e.g., inflation adjusted Federal bonds
10% highly speculative investments with a large upside.
Interesting that he describes it that way, but the Taleb advised "Universa Investments L.P." hedge fund, at least according to this article,
https://www.institutionalinvestor.com/a ... -Right-Now
suggests:
"...the hypothetical portfolio it recommends to clients: a 3.33 percent allocation to the Universa tail risk strategy, coupled with a 96.67 percent position in the Standard & Poor’s 500 stock index, a proxy the firm uses for the systematic risk being mitigated..."
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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

Post by steve321 » Sun May 24, 2020 7:52 am

JoMoney wrote:
Sun May 24, 2020 7:25 am
steve321 wrote:
Sun May 24, 2020 2:06 am
...
The Larry portfolio is probably the closest I have seen on Bogleheads to this:
In The Black Swan, Taleb defines a prudent investment approach as a barbell:
90% the safest possible investments, e.g., inflation adjusted Federal bonds
10% highly speculative investments with a large upside.
Interesting that he describes it that way, but the Taleb advised "Universa Investments L.P." hedge fund, at least according to this article,
https://www.institutionalinvestor.com/a ... -Right-Now
suggests:
"...the hypothetical portfolio it recommends to clients: a 3.33 percent allocation to the Universa tail risk strategy, coupled with a 96.67 percent position in the Standard & Poor’s 500 stock index, a proxy the firm uses for the systematic risk being mitigated..."
Yes I gather the Universa strategy and the barbell portfolio are based on the same philosopy (profit from rare events which have huge payoffs) by have very different allocations.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by JoMoney » Sun May 24, 2020 7:58 am

steve321 wrote:
Sun May 24, 2020 7:52 am
JoMoney wrote:
Sun May 24, 2020 7:25 am
steve321 wrote:
Sun May 24, 2020 2:06 am
...
The Larry portfolio is probably the closest I have seen on Bogleheads to this:
In The Black Swan, Taleb defines a prudent investment approach as a barbell:
90% the safest possible investments, e.g., inflation adjusted Federal bonds
10% highly speculative investments with a large upside.
Interesting that he describes it that way, but the Taleb advised "Universa Investments L.P." hedge fund, at least according to this article,
https://www.institutionalinvestor.com/a ... -Right-Now
suggests:
"...the hypothetical portfolio it recommends to clients: a 3.33 percent allocation to the Universa tail risk strategy, coupled with a 96.67 percent position in the Standard & Poor’s 500 stock index, a proxy the firm uses for the systematic risk being mitigated..."
Yes I gather the Universa strategy and the barbell portfolio are based on the same philosopy (profit from rare events which have huge payoffs) by have very different allocations.
Except that being 96.67% in the S&P 500 is nothing at all like being "90% the safest possible investments"
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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

Post by steve321 » Sun May 24, 2020 8:02 am

JoMoney wrote:
Sun May 24, 2020 7:58 am
steve321 wrote:
Sun May 24, 2020 7:52 am
JoMoney wrote:
Sun May 24, 2020 7:25 am
steve321 wrote:
Sun May 24, 2020 2:06 am
...
The Larry portfolio is probably the closest I have seen on Bogleheads to this:
In The Black Swan, Taleb defines a prudent investment approach as a barbell:
90% the safest possible investments, e.g., inflation adjusted Federal bonds
10% highly speculative investments with a large upside.
Interesting that he describes it that way, but the Taleb advised "Universa Investments L.P." hedge fund, at least according to this article,
https://www.institutionalinvestor.com/a ... -Right-Now
suggests:
"...the hypothetical portfolio it recommends to clients: a 3.33 percent allocation to the Universa tail risk strategy, coupled with a 96.67 percent position in the Standard & Poor’s 500 stock index, a proxy the firm uses for the systematic risk being mitigated..."
Yes I gather the Universa strategy and the barbell portfolio are based on the same philosopy (profit from rare events which have huge payoffs) by have very different allocations.
Except that being 96.67% in the S&P 500 is nothing at all like being "90% the safest possible investments"
yes but the point is that the 3.33% to Universa has huge payoff precisely when the S&P 500 is in trouble; as such it is a hedge and mitigates the risk of the whole portfolio.
https://www.bloomberg.com/news/articles ... 0-in-march
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosophy

Post by Robert T » Sun May 24, 2020 8:07 am

.
FWIW - my take from 12 years ago:

viewtopic.php?t=18546

Robert
.

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

Post by JoMoney » Sun May 24, 2020 8:10 am

steve321 wrote:
Sun May 24, 2020 8:02 am
....
yes but the point is that the 3.33% to Universa has huge payoff precisely when the S&P 500 is in trouble; as such it is a hedge and mitigates the risk of the whole portfolio.
https://www.bloomberg.com/news/articles ... 0-in-march
It did this time... Who knows if it will be sustained over any future crisis. It's not exactly transparent with what's going on in the portfolio, and if it is successful you can be sure people will eventually figure it out, and competition will kill it. Anyway you slice it, investors as a group can't beat themselves.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosophy

Post by steve321 » Sun May 24, 2020 8:29 am

Robert T wrote:
Sun May 24, 2020 8:07 am
.
FWIW - my take from 12 years ago:

viewtopic.php?t=18546

Robert
.
Thank you, very interesting. It's unfortunate that the link to the original article you refer to is no longer active apparently.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosophy

Post by Call_Me_Op » Sun May 24, 2020 8:46 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?
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosphy

Post by tibbitts » Sun May 24, 2020 9:00 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.
It's not really true that Bogleheads in general believe in owning the entire market. We have plenty of Bogleheads who advocate excluding international equities entirely, applying profitability screens (S&P600 for small caps), etc.etc. It's a slipperly slope when you start picking stocks by any measure.

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

Post by JamesDean44 » Sun May 24, 2020 1:14 pm

oldfort wrote:
Sat May 23, 2020 12:23 pm
steve321 wrote:
Sat May 23, 2020 12:20 pm
oldfort wrote:
Sat May 23, 2020 12:12 pm
steve321 wrote:
Sat May 23, 2020 10:13 am
Hang on man, I think Swedroe would also say that small value is more risky and so it ought to have > returns. Where he would disagree is that for him it's better to have a barbell porfolio (a big safe chunk and then a small risky part like SCV) because it mitigates risks dues to fat tail events, which is kind of relevant to the subject of Taleb too.
Swedroe's advice has changed a lot of the years. He supports selling reinsurance and being short volatility, which are bets tail events won't happen.
yeah excellent point, didn't think of that one. But the Larry portfolio is instead designed to protect you against tail events IMO. So yes I guess his opinion has changed; that's probably because he has great pedagogical qualities but relies on other people's research to make up his mind.
If you are referring to the original Larry portfolio, something like, 30% SV and 70% bonds, Larry himself doesn't believe in it anymore.
Larry never recommended that a 30/70 would be appropriate for all investors or that the equity portion should be all domestic SCV. The allocation split would depend upon the individual investor and the investor's goals and risk tolerance. Swedroe hasn't changed his view that certain factors can improve diversification, and coupled with safe bonds, reduce left tail risk.

Most left tail reinsurance events theoretically wouldn't be correlated with equity beta.

I don't personally like the left tail risk of the volatility risk premium in equities and it's equity beta correlation, but some think that the hardening afterwards makes up for it as part of a diversified portfolio. Taleb obviously wouldn't recommend selling volatility insurance.

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

Post by oldfort » Sun May 24, 2020 2:11 pm

JamesDean44 wrote:
Sun May 24, 2020 1:14 pm
oldfort wrote:
Sat May 23, 2020 12:23 pm
steve321 wrote:
Sat May 23, 2020 12:20 pm
oldfort wrote:
Sat May 23, 2020 12:12 pm
steve321 wrote:
Sat May 23, 2020 10:13 am
Hang on man, I think Swedroe would also say that small value is more risky and so it ought to have > returns. Where he would disagree is that for him it's better to have a barbell porfolio (a big safe chunk and then a small risky part like SCV) because it mitigates risks dues to fat tail events, which is kind of relevant to the subject of Taleb too.
Swedroe's advice has changed a lot of the years. He supports selling reinsurance and being short volatility, which are bets tail events won't happen.
yeah excellent point, didn't think of that one. But the Larry portfolio is instead designed to protect you against tail events IMO. So yes I guess his opinion has changed; that's probably because he has great pedagogical qualities but relies on other people's research to make up his mind.
If you are referring to the original Larry portfolio, something like, 30% SV and 70% bonds, Larry himself doesn't believe in it anymore.
Larry never recommended that a 30/70 would be appropriate for all investors or that the equity portion should be all domestic SCV. The allocation split would depend upon the individual investor and the investor's goals and risk tolerance. Swedroe hasn't changed his view that certain factors can improve diversification, and coupled with safe bonds, reduce left tail risk.

Most left tail reinsurance events theoretically wouldn't be correlated with equity beta.

I don't personally like the left tail risk of the volatility risk premium in equities and it's equity beta correlation, but some think that the hardening afterwards makes up for it as part of a diversified portfolio. Taleb obviously wouldn't recommend selling volatility insurance.
LENDX, SRRIX, AVRPX, QSPRX. If you looked at a model Larry portfolio from today and 2010, they would have almost nothing in common.

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

Post by steve321 » Sun May 24, 2020 2:18 pm

oldfort wrote:
Sun May 24, 2020 2:11 pm
JamesDean44 wrote:
Sun May 24, 2020 1:14 pm
oldfort wrote:
Sat May 23, 2020 12:23 pm
steve321 wrote:
Sat May 23, 2020 12:20 pm
oldfort wrote:
Sat May 23, 2020 12:12 pm


Swedroe's advice has changed a lot of the years. He supports selling reinsurance and being short volatility, which are bets tail events won't happen.
yeah excellent point, didn't think of that one. But the Larry portfolio is instead designed to protect you against tail events IMO. So yes I guess his opinion has changed; that's probably because he has great pedagogical qualities but relies on other people's research to make up his mind.
If you are referring to the original Larry portfolio, something like, 30% SV and 70% bonds, Larry himself doesn't believe in it anymore.
Larry never recommended that a 30/70 would be appropriate for all investors or that the equity portion should be all domestic SCV. The allocation split would depend upon the individual investor and the investor's goals and risk tolerance. Swedroe hasn't changed his view that certain factors can improve diversification, and coupled with safe bonds, reduce left tail risk.

Most left tail reinsurance events theoretically wouldn't be correlated with equity beta.

I don't personally like the left tail risk of the volatility risk premium in equities and it's equity beta correlation, but some think that the hardening afterwards makes up for it as part of a diversified portfolio. Taleb obviously wouldn't recommend selling volatility insurance.
LENDX, SRRIX, AVRPX, QSPRX. If you looked at a model Larry portfolio from today and 2010, they would have almost nothing in common.
yes they seem based on opposite philosophies. Btw those 4 funds LENDX, SRRIX, AVRPX, QSPRX all went down this year though they are not supposed to be correlated.
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosophy

Post by JamesDean44 » Sun May 24, 2020 3:05 pm

steve321 wrote:
Sun May 24, 2020 2:18 pm
oldfort wrote:
Sun May 24, 2020 2:11 pm
JamesDean44 wrote:
Sun May 24, 2020 1:14 pm
oldfort wrote:
Sat May 23, 2020 12:23 pm
steve321 wrote:
Sat May 23, 2020 12:20 pm


yeah excellent point, didn't think of that one. But the Larry portfolio is instead designed to protect you against tail events IMO. So yes I guess his opinion has changed; that's probably because he has great pedagogical qualities but relies on other people's research to make up his mind.
If you are referring to the original Larry portfolio, something like, 30% SV and 70% bonds, Larry himself doesn't believe in it anymore.
Larry never recommended that a 30/70 would be appropriate for all investors or that the equity portion should be all domestic SCV. The allocation split would depend upon the individual investor and the investor's goals and risk tolerance. Swedroe hasn't changed his view that certain factors can improve diversification, and coupled with safe bonds, reduce left tail risk.

Most left tail reinsurance events theoretically wouldn't be correlated with equity beta.

I don't personally like the left tail risk of the volatility risk premium in equities and it's equity beta correlation, but some think that the hardening afterwards makes up for it as part of a diversified portfolio. Taleb obviously wouldn't recommend selling volatility insurance.
LENDX, SRRIX, AVRPX, QSPRX. If you looked at a model Larry portfolio from today and 2010, they would have almost nothing in common.
yes they seem based on opposite philosophies. Btw those 4 funds LENDX, SRRIX, AVRPX, QSPRX all went down this year though they are not supposed to be correlated.
Not sure what you mean by opposite philosophies, and I don't want to detail your thread. But as an example, 30/70 (global scv and em value / ITT, maybe with some small allocation to commodities and REITs from circa 2010/2011) is not opposite to a 30/50/20 with some alternatives. (Not my portfolio by the way.).

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

Post by steve321 » Sun May 24, 2020 3:21 pm

JamesDean44 wrote:
Sun May 24, 2020 3:05 pm
steve321 wrote:
Sun May 24, 2020 2:18 pm
oldfort wrote:
Sun May 24, 2020 2:11 pm
JamesDean44 wrote:
Sun May 24, 2020 1:14 pm
oldfort wrote:
Sat May 23, 2020 12:23 pm


If you are referring to the original Larry portfolio, something like, 30% SV and 70% bonds, Larry himself doesn't believe in it anymore.
Larry never recommended that a 30/70 would be appropriate for all investors or that the equity portion should be all domestic SCV. The allocation split would depend upon the individual investor and the investor's goals and risk tolerance. Swedroe hasn't changed his view that certain factors can improve diversification, and coupled with safe bonds, reduce left tail risk.

Most left tail reinsurance events theoretically wouldn't be correlated with equity beta.

I don't personally like the left tail risk of the volatility risk premium in equities and it's equity beta correlation, but some think that the hardening afterwards makes up for it as part of a diversified portfolio. Taleb obviously wouldn't recommend selling volatility insurance.
LENDX, SRRIX, AVRPX, QSPRX. If you looked at a model Larry portfolio from today and 2010, they would have almost nothing in common.
yes they seem based on opposite philosophies. Btw those 4 funds LENDX, SRRIX, AVRPX, QSPRX all went down this year though they are not supposed to be correlated.
Not sure what you mean by opposite philosophies, and I don't want to detail your thread. But as an example, 30/70 (global scv and em value / ITT, maybe with some small allocation to commodities and REITs from circa 2010/2011) is not opposite to a 30/50/20 with some alternatives. (Not my portfolio by the way.).
what I meant is that the 30/70 was made you to protect you from left tail events; funds like AVRPX are based on the assumption that you can make money from such events as far as I understand.
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

JamesDean44
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosophy

Post by JamesDean44 » Sun May 24, 2020 3:57 pm

steve321 wrote:
Sun May 24, 2020 3:21 pm
JamesDean44 wrote:
Sun May 24, 2020 3:05 pm
steve321 wrote:
Sun May 24, 2020 2:18 pm
oldfort wrote:
Sun May 24, 2020 2:11 pm
JamesDean44 wrote:
Sun May 24, 2020 1:14 pm


Larry never recommended that a 30/70 would be appropriate for all investors or that the equity portion should be all domestic SCV. The allocation split would depend upon the individual investor and the investor's goals and risk tolerance. Swedroe hasn't changed his view that certain factors can improve diversification, and coupled with safe bonds, reduce left tail risk.

Most left tail reinsurance events theoretically wouldn't be correlated with equity beta.

I don't personally like the left tail risk of the volatility risk premium in equities and it's equity beta correlation, but some think that the hardening afterwards makes up for it as part of a diversified portfolio. Taleb obviously wouldn't recommend selling volatility insurance.
LENDX, SRRIX, AVRPX, QSPRX. If you looked at a model Larry portfolio from today and 2010, they would have almost nothing in common.
yes they seem based on opposite philosophies. Btw those 4 funds LENDX, SRRIX, AVRPX, QSPRX all went down this year though they are not supposed to be correlated.
Not sure what you mean by opposite philosophies, and I don't want to detail your thread. But as an example, 30/70 (global scv and em value / ITT, maybe with some small allocation to commodities and REITs from circa 2010/2011) is not opposite to a 30/50/20 with some alternatives. (Not my portfolio by the way.).
what I meant is that the 30/70 was made you to protect you from left tail events; funds like AVRPX are based on the assumption that you can make money from such events as far as I understand.
No--that isn't right. AVRPX would not be expected to zig when equities zag from a left tail event.

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

Post by steve321 » Mon May 25, 2020 6:48 am

JamesDean44 wrote:
Sun May 24, 2020 3:57 pm
steve321 wrote:
Sun May 24, 2020 3:21 pm
JamesDean44 wrote:
Sun May 24, 2020 3:05 pm
steve321 wrote:
Sun May 24, 2020 2:18 pm
oldfort wrote:
Sun May 24, 2020 2:11 pm


LENDX, SRRIX, AVRPX, QSPRX. If you looked at a model Larry portfolio from today and 2010, they would have almost nothing in common.
yes they seem based on opposite philosophies. Btw those 4 funds LENDX, SRRIX, AVRPX, QSPRX all went down this year though they are not supposed to be correlated.
Not sure what you mean by opposite philosophies, and I don't want to detail your thread. But as an example, 30/70 (global scv and em value / ITT, maybe with some small allocation to commodities and REITs from circa 2010/2011) is not opposite to a 30/50/20 with some alternatives. (Not my portfolio by the way.).
what I meant is that the 30/70 was made you to protect you from left tail events; funds like AVRPX are based on the assumption that you can make money from such events as far as I understand.
No--that isn't right. AVRPX would not be expected to zig when equities zag from a left tail event.
what I meant is that AVRPX works on the assumption that selling insurance is profitable; the Larry portfolio was based on Taleb's assumption that you get unforeseen catastrophic events (hence the small allocation of 30% to stocks) implying that selling insurance you may go bust; Taleb's strategy is based on buying insurance.
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

KEotSK66
Posts: 294
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Re: The Taleb Asness 'debate' in the light of Bogleheads philosophy

Post by KEotSK66 » Mon May 25, 2020 8:46 am

i don't know much about asness, other than his firm published a great brief paper years ago about hedging without getting exotic

taleb is outspoken, marketing ? i used to read bits and pieces from his books and found his stuff interesting, my takeaway was hope for the best expect the worst

re bogle, he said one thing and did another. frequently recommended something like the balanced index but held a much different portfolio, i guess he was trying to make it simple for people only looking to be invested

re swedroe, he wrote a book when i first started investing which took you through the process of adding classes one by one and showing how the sharpe ratio improved. i found it educational, unfortunately it was one of things which set me on a path thinking i was a portfolio manager, learned a lot on that path but my returns suffered

===============

1) nothing wrong with learning or discussing investments but you better be careful about acting on advice without a firm grasp on your objectives, requirements, situation, etc. for some getting that grip may not be straightforward so professional input may be required but for others it boils down to spending a few hours running the numbers and if you don't get that insight you're building on a weak foundation

2) keep the plan simple, often praised seldom practiced...a weak point for many bhs. avoid clever plans/schemes to circumvent this or exploit that, odds are you're going to shoot yourself in the foot. you don't need dozens of funds

3) if you do 1) and 2) you'll find yourself laughing at the media and realizing projecting the past into the future and paying attention to return predictions are "weird", more sore points for many bhs

at some point you have to pull the trigger, you have to have faith in markets, the world, and the work you did developing your plan. if you did things honestly you'll be ok and if you didn't you'll end up going through the process again and again until you "get real", investment existentialism if you will

good luck
"i just got fluctuated out of $1,500", jerry

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