The Guardian wrote about Nassim Talebs The BlackSwan: If you are aware of your own ignorance, though, you can use it to make money, as Taleb did on Wall Street, as an options trader. Options are gambles about what the market will do. To sell an option to somebody else, you need to be confident you have some kind of theory about what will happen in the future. If you’re right, you make a small amount of money; if you’re wrong, you lose lots. Taleb, however, realised he had no theories. So he exploited everyone else’s confidence, buying options according to no particular prediction. Most days, his rivals made a small amount of money, and he lost a small amount. But the one thing he could predict was that, if he waited long enough, something unpredictable would happen. When it did, some of his rivals would lose millions, and Taleb would make millions. It happened often enough for him to turn a big profit. It takes a rebellious nature, and an iron stomach, to go against the flow for so long. It is, perhaps, the kind of mindset that comes naturally to someone who lived through the Lebanese civil war – a classic, unpredictable black swan – and then found himself living as an exile, at one remove from American society. We are not all so good at resisting the herd’s way of thinking.
There’s an investment strategy to profit from improbability. “Be as hyperconservative and hyperaggressive as you can instead of being mildly aggressive or conservative,” Taleb advises. “Instead of having medium risk, you have high risk on one side and no risk on the other. The average will be medium risk but constitutes a positive exposure to the Black Swan.”
The hand can feed the turkey for 1,000 days until, on day 1,001, it wrings the fowl’s neck for Thanksgiving. The trick is to be the butcher, not the turkey.
“A thousand days cannot prove you right, but one day can prove you to be wrong,” writes Taleb. “I am not urging you to stop being a fool. Just be a fool in the right places.”
With risk measures at or near record lows, including volatility indexes, corporate bond defaults, credit spreads and emerging-market yields, Taleb might help you dodge the next Black Swan.
Business Week wrote:
The Black Swan is not as unprecedented as Taleb claims. You may have encountered pieces of his arguments in recent popular books by the likes of Chris Anderson, James Gleick, Paul Ormerod, Duncan Watts, Steven Strogatz, Aaron Brown, and one of Taleb’s few living heroes, Benoit Mandelbrot.
Moreover, despite Taleb’s best efforts to make The Black Swan a useful guide to life, we human beings aren’t wired to cope well with radical uncertainty. Donald Rumsfeld, the former Defense Secretary, famously cogitated in front of the microphones about “unknown unknowns,” which is precisely Taleb’s conceptand look where the philosophizing got him. Still, The Black Swan is a richly enjoyable read with an important message.
Nassim Talebs The Black Swan is one of the best and most important books you will read. Go get it!