Could the markets be setting up for another “Black Swan” event and can anti-fragility be
brought into global financial systems? BNN asks Nassim Taleb, author of “The Black Swan.”
Click link or photo to launch video.
http://www.bnnprodown.com.edgesuite.net/2012/05/30/20120530_TC_NT.mp4
Or http://m.bnn.ca/article?itemId=689374&feedId=444
HatTip to Trevor!
Taleb is listed rather prominently on the Universa Website and Spitznagel graciously credits Taleb in the paper, but Taleb and/or Spitznagel have put a fork in the archetypal Black Swan theory (and yet, Taleb has never been really consistent, so one can say he meant this all along at some level). I have no doubt some people can predict infrequent events, and perhaps Spitznagel is one of them. Yet it’s pretty hard to validate objectively, and in my experienced is best done via observing all the little good investments someone has made for 10 years, something that is impossible to do in scale. The idea that if you can predict infrequent events you can do very well for yourself is true enough, but that’s a lot less useful to know than if rare events are unappreciated in general, which turns out not be be true.
via Falkenblog: Is Spitznagel an Apostate?. HatTip to Dave Lull
Last week, Horizons Exchange Traded Funds launched two Exchange Traded Funds based on Black Swan basics. Mr. Taleb serves as a distinguished scientific advisor for Universa, the managers of the two funds. The funds are designed to protect investors against Black Swan events that will impact the S&P 500 Index and the TSX 60 Index. The Horizons Universa Canadian Black Swan ETF HUT.A-T and the Horizons Universa U.S. Black Swan ETF will combine traditional exposure to equity indices with an actively-managed options strategy. Black Swan ETFs essentially consist of two components: exposure to broadly based equity indices and a pool of put and call options that utilize the Black Swan Protection Protocol. Mark Spiznagel, founder of Universa manages a fund using the protocol that saw a return in excess of 100% in 2008.
A word of caution: These Exchange Traded Funds are specialty funds that are expected to record long periods of little or no return. However, potential return is substantial if and when a Black Swan event occurs. Consider the ETFs as a form of long term investment portfolio insurance policy.
If there’s an investment-savvy reader out there who cares to have a look at and comment on this ETF for us that would be great. Doesn’t an “actively managed basket of put and call options” imply a steady drain on the fund unless and until there is a ‘Black Swan’ event?
The protection strategy
Universa’s proprietary Black Swan Protection Protocol (BSPP) uses an actively managed basket of put and call options that aims to protect the equity index exposure from Black Swan events. The BSPP should generate positive returns during sudden significant market declines. Gains generated from the BSPP are invested into the equity index exposure when it is historically less expensive, giving investors a potential “buy-low” advantage and the future compound growth that comes with it.
via Horizons Universa US Black Swan ETF (HUS.U).
HatTip to Trevor.
Apparently the NNT quotes Bloomberg posted earlier today (and to which I posted a link) were taken out of context and NNT isn’t too happy about it.
So why is Taleb so furious?
Basically he says he wasn’t giving investment advice at all, and that he was giving an hour-long lecture on anti-fragility and risk, and that he was making a long-term structural call based on the fact that Europe was moving towards decentralization (which in his book is good), even if in the meantime they have to break a few eggs.
He insists the lecture had nothing to do with investment advice, and that it was just a discussion of structure.
The line about “fun” currencies, he says, was a joke.
Here are some quotes from our call with him.
———–
“It’s very simple I was giving a lecture on risk management.”
“Two problems in the long run of risk.” The first problem is deficits. The second one is centralization.
“I’m making a broader long-term call”
“I’m making a long-term risk management call.”
“I was massively angry”
“I spoke for an hour on methods of my risk heuristics.”
“And these f*cks, all they did, and take out of context comments on investment
“They’re going in the right direction, but they’re going to break some eggs.”
“This is not a market call, this is a structural call.”
Europe is decentralizing. The US is “Obamaizing”
“I was presenting my book on the idea of anti-fragility.”
“He turned me into an investment caller like all these,”
“They made it a caricature of what I said.”
“Gross caricature.”
via Nassim Taleb Responds To Bloomberg Article – Business Insider.
Thanks Dave!