Reading Mandelbrot, both his book (Misbehaviour of Markets), his article in the Financial Times and what Maoboussin says about him, I thought the basic point was that days of outsize positive and negative return in stock market were much more common than the Gaussian distribution would predict. And which asset (or stock) will perform is even more unpredictable than you would predict (ie there is a Google out there, and you need to have even a fractional share ownership in it, to keep up).marco100 wrote:
But this strategy is actually reasonably consistent with Taleb's black swan/barbell strategy, isn't it?
If your asset base is minimal, as it is for most young investors starting out, then you don't really risk much by looking for a black swan event, and your gains could be outsized.
The implication for a young investor is that you have to get that $2000 into a TSM ASAP. Because you mustn't miss those 50 market trading days in the next 30 years that will dominate your returns.
(I wish I'd known that at 20!)
The difference of being in the market, on those 50 days, v. not, over 30 years is something like 4% pa compounded (I'd have to look it up).
It is also true, as per Zvi Bodie, that the longer you are in the market, the higher your risk. Risk doesn't fall over time. *however* when you are young, you have more human capital, so you can recover.
I haven't read Taleb (the first book made some good points but was very irritatingly written) but that is the conclusion I derived from Mandelbrot (who invented Fractal Finance).