Good morning folks! I hope you’re well.
I have sad news for you, I no longer have anything on my trading watchlist, so instead of talking charts, let’s talk about a book!
For those who’ve been following this style of trading for a while you know opportunities tend to come in waves, when they do we have a lot, otherwise we have little to do.
That’s fine by me, on the opposite I love it, it gives us time to do / learn other things.
I finished reading Antifragile yesterday – I must say, I am glad I reread it, picked up on quite a few things.
One sentence summary of Antifragile by Nassim Taleb
Everything is impacted by shocks, volatility and uncertainty, what is fragile is vulnerable to those three conditions, what is antifragile thrives off them.
- Objects that are fragile tend to hate volatility and shocks, they’ll break.
- Objects that are robust will tend to shake them off, but if the volatility / shocks keep being repeated or reach a certain size they’ll be overwhelmed as well.
- Antifragile objects thrive on uncertainty, shocks and volatility.
(You can obviously replace objects by system / individuals / companies / etc)
Using Via Negativa to improve our lives
To protect yourself from being fragile he shows how fragility mainly comes from a few activities we should remove from our habits (driving without a seat belt, biking around a busy city, getting on a plane with no certified pilot and no co-pilot, not doing hard core drugs)
Via negativa is usually the safest way to go, when we look back at Science we usually disprove a theory before trying to prove something new, it is to the new to prove the old is wrong.
Yet, we seem to believe that we should be eating a specific diet non stop – without a single proof why it’s better than a mix and match of everything while including a few fast – people try to prove the benefits of being on a keto diet, or paleo or vegan or whatever, they find benefits but they don’t disprove our original method of eating was worse.
Same for traders, we should have a very robust system, that we can then take elements off to make it more simple, more effective etc.
Here’s a cool additional blog post if you want to read more about the idea
The Barbell strategy
In terms of investing he seems to believe that one would be a lot better off keeping 80 to 90% of his assets in extremely safe deposits such as treasury bonds and disregard their returns but place 10 to 20% of ones’ capital into extremely risky assets that would be impacted by Black Swan events and could see a clear move to the upside.
For instance, here’s a cool article from Bloomberg
Nassim Taleb-Advised Universa Tail Fund Returned 3,600% in March (2020 that is)
This fund is focused on tail-risk events and serves as a protection to investors that are typically long only.
Instead of buying companies, this fund focuses primarily on investing in capital protection.
The interesting thing is that you tend to have the idea that funds that are protecting you from loses and therefore buying OTM options or puts would have a negative return in “normal” years, however, between 2008 and 2019 the same fund returned 105%.
If you add the 3,600% in Q1 of 2020, that’s rather impressive in my book.
For a view into their investment idea here’s another article
In Universa’s philosophy, which bears similarities to the economic theory of Ludwig von Mises, market crashes are inevitable. This means when positioned correctly, investors can decide to lose a small amount of money in some years to make big gains from any downturns. Essentially, you lose a little in the short term to make a lot in the long run.
Conventional hedging uses additional non-equity investments as a means of risk mitigation, but Yarckin argues that everything added to lower drawdown will also lower your wealth. Whether it be bonds, gold, long volatility, hedge funds and CTAs, “at the end of the day it has lowered the volatility of your returns, but also lowered your returns,” Yarckin said.
Instead, by focusing on drawdowns specifically and using Universa’s form of tail-risk hedging, people can “raise the rate that they compound capital while at the same time lowering their risk,” Yarckin said.
That’s it for today, hope you enjoyed it!
Becoming a flâneur
According to Nassim Nicholas Taleb a flâneur is:
“Someone who, unlike a tourist, makes a decision opportunistically at every step to revise his schedule (or his destination) so he can imbibe things based on new information obtained. In research and entrepreneurship, being a flâneur is called “looking for optionality.”
Taleb uses it as a word for someone who lounges, a loafer, someone who isn’t part of the ‘rat race’ and instead sits around reading books, visiting cafes, taking aimless walks. Of course, becoming a flâneur has now become my goal.
The idea that you are free to change your schedule on a whim as well as your destination based on new information is something I aspire to.
It is only when you can go where you want, when you want without having to let others know and can truly enjoy a walk to the coffee shop rather than running to catch the subway to go to work that I believe you are free.
No time constraints, no schedule. It’s not about not working, it’s about not having to follow some predetermined routine forced upon you.
Sounds like the ideal solution.
Let’s become antifragile flâneurs 🙂
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