Black Swans

biffvernon · Post by **biffvernon** » 26 Jan 2013, 15:16

Nassim Nicholas Taleb wrote:Friends, the final revision of my rebuttal of the idea that *small probabilities are expensive* (Ilmanen's paper) is about to be submitted to FAJ (where his paper was published). I link it to the general error, a methological blindess to fat tails, I now call "Pinker empiricism".

http://www.fooledbyrandomness.com/Ilmanen.pdf
Comments on the first part is welcome as the editors need the paper by Monday. Thanks in advance.

Post by **kenneal - lagger** » 26 Jan 2013, 15:37

?

Statistical gobbledegook, as far as I can see, about a gambling den.

biffvernon · Post by **biffvernon** » 26 Jan 2013, 18:16

Admittedly no swans, black or otherwise are mentioned, but two elephants have walk on roles.

JavaScriptDonkey · Post by **JavaScriptDonkey** » 26 Jan 2013, 19:58

Appallingly written paper.

The only question we need to ask of Ilmanen or Taleb is whether their theories have allowed them to profit from the probabilities they seek to demonstrate.

Buffet knows little of this and yet I think we would all take his advice over that of Taleb.

biffvernon · Post by **biffvernon** » 26 Jan 2013, 21:49

I think it is well known that Taleb made enough to give up being an employee quite some time ago

He now devotes his efforts to warning the rest of us.

JavaScriptDonkey · Post by **JavaScriptDonkey** » 27 Jan 2013, 09:44

Compared to me certainly but that was not the point...compared to Buffet was the point.

biffvernon · Post by **biffvernon** » 27 Jan 2013, 10:00

One of Taleb's points is that the past can be a poor guide to the future - that's central to the idea of the Black Swan. Buffet has had a long life of making money but that does not mean he will make money tomorrow.

JavaScriptDonkey · Post by **JavaScriptDonkey** » 27 Jan 2013, 18:38

Well yes but that wasn't where I was going. I picked Buffet because he invests in the old fashioned way. He buys in to companies that he thinks are fundamentally sound. Ones that are run with prudence and that have viable business plans.

Taleb it seems makes money from writing books and laying bets against the market.

That the pre-crash risk analysis was fundamentally flawed wasn't as secret and, forgive me if I am wrong, Taleb (along with many other pundits) never put a date on the crash before it happened.

I also don't see Taleb in Forbes list of top performing hedgefund managers.

Our own dear LB3 is constantly predicting a crash as well.

Little John · Post by **Little John** » 27 Jan 2013, 18:45

JavaScriptDonkey wrote:Well yes but that wasn't where I was going. I picked Buffet because he invests in the old fashioned way. He buys in to companies that he thinks are fundamentally sound. Ones that are run with prudence and that have viable business plans.

Taleb it seems makes money from writing books and laying bets against the market.

That the pre-crash risk analysis was fundamentally flawed wasn't as secret and, forgive me if I am wrong, Taleb (along with many other pundits) never put a date on the crash before it happened.

I also don't see Taleb in Forbes list of top performing hedgefund managers.

Our own dear LB3 is constantly predicting a crash as well.

Yep

It's not difficult for a stopped clock to be correct twice a day..

biffvernon · Post by **biffvernon** » 27 Jan 2013, 20:40

JavaScriptDonkey wrote: Taleb (along with many other pundits) never put a date on the crash before it happened.

It wouldn't be a Black Swan if it came with a date of arrival.

JavaScriptDonkey wrote:I also don't see Taleb in Forbes list of top performing hedgefund managers.

Possibly because he isn't a hedgefund manager.

Little John · Post by **Little John** » 27 Jan 2013, 20:55

biffvernon wrote:
JavaScriptDonkey wrote: Taleb (along with many other pundits) never put a date on the crash before it happened.
It wouldn't be a Black Swan if it came with a date of arrival.

JavaScriptDonkey wrote:I also don't see Taleb in Forbes list of top performing hedgefund managers.
Possibly because he isn't a hedgefund manager.

Buffet's basic thesis is that:

a) He is able to spot companies that are fundamentally sound early on in their growth curve.

b) Fundamentally sound companies are more likely to survive and/or prosper come shit or come shine

c) He invests in companies he has identified as fundamentally sound.

Buffet has made a lot of money from his investments.

Taleb's basic thesis is that:

a) Shit happens.

b) Shit happening is very difficult to predict for a variety of reasons.

c) Anyone who thinks they can predict shit happening with any significant degree of confidence is foolish.

Well, no shit Sherlock. Go to the top of the class.

Finally, in terms of making money, Taleb has made far less than Buffet, mostly from writing books on the fact that shit happens.

JavaScriptDonkey · Post by **JavaScriptDonkey** » 27 Jan 2013, 21:08

biffvernon wrote: Possibly because he isn't a hedgefund manager.

Indeed.

As a BTW steganalysis uses definitions of randomness as a marker for identifying data streams that likely contain obfuscated information. The basic idea is that as steganography seeks to imbue randomness in order to avoid artifacts then the closer to random that data appears the less likely it is to be actually random.

In cryptoanalysis similar grades of randomness can be used to gain a hint at the encryption method being used.

Randomness is mostly about perception and resolution.

Time for a cup of chi.

JavaScriptDonkey · Post by **JavaScriptDonkey** » 27 Jan 2013, 21:24

A very interesting article on the Top 10 trades can be found over at Business Insider.

Little John · Post by **Little John** » 27 Jan 2013, 22:34

These buggers are all self professed geniuses on how to make money from making trades.

No one seems to be willing or able to make money from making stuff. You know, like real stuff in the real world...

It's like the system is feeding off itself because that's all that's left.

Post by **kenneal - lagger** » 28 Jan 2013, 03:30

That is the problem, Steve, and more money is being diverted from investment in manufacturing all the time. Once money is out of the manufacturing sector and in the financial sector is does no good for the rest of us. It isn't invested to provide employment so there is no trickle down

People wonder why things in the UK are different now from when we started the industrial revolution. It's painfully obvious that during the time of the industrial revolution people who had capital invested it in the manufacturing sector. Nowadays, if people have capital they are more likely to invest it in the financial sector as the returns are likely to be higher.

They might be for a while but you can't make money from money on a permanent basis. Sooner or later there will be a bursting of the bubble and all the gains will turn to losses, apart ffrom the gains of the few who see the crash coming and get out quickly enough.