Archives of “January 5, 2019” day

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Nassim Taleb and Mark Spitznagel talk about how government intervention postpones the inevitable.

  
  Education

Mark Spitznagel and Nassim Taleb started the first equity tail-hedging firm in 1999. Since then these two friends and colleagues have helped popularize so-called “black swan” investing, with Spitznagel as the founder and CIO of hedge fund Universa Investments and Taleb as an academic and author of The Black Swan. The two men recently sat down to discuss Spitznagel’s new book, The Dao of Capital, as well as their reactions to and criticisms of Thomas Piketty’s book. Here is a transcript of their conversation:

Nassim Taleb: Mark, your book is the only place that understands crashes as natural equalizers. In the context of today’s raging debates on inequality, do you believe that the natural mechanism of bringing equality — or, at the least, the weakening of the privileged — is via crashes?

Mark Spitznagel: Well straight away let’s ask ourselves: Are we really seeking realized financial equality? How can we ever know what is the natural or acceptable level of inequality, and why is it even the rule of the majority to determine that? That aside, one can absolutely say logically and empirically that asset-market crashes diminish inequality. They are a natural mechanism for this, and a cathartic response to central banks’ manipulation of interest rates and resulting asset-market inflation, as well as other government bailouts, that so amplify inequality in the first place. So crashes are capitalism’s homeostatic mechanism at work to right a distorted system. We are in this ridiculous situation where utopian government policies meant to lessen inequality are a reaction to the consequences of other government policies — a round trip of market distortion. After we’ve been run over by a car, the assumed best treatment is to back the car over us again.

Taleb: I see you are distinguishing between equality of outcome and equality of process. Actually one can argue that the system should ensure downward mobility, something much more important than upward one. The statist French system has no downward mobility for the elite. In natural settings, the rich are more fragile than the middle class and we need the system to maintain it. (more…)

Evaluating Yourself as a Trader

  
  Education
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FAILSIGN1) What is the quality of your self-talk while trading?

2) What work do you do on yourself and your trading while the market is closed?

3) How would your trading profit/loss profile change if you eliminated a few days where you lacked proper risk control?

4) Does the size of your positions reflect the opportunity you see in the market?

5) Are trading losses often followed by further trading losses due to frustration?

6) Do you cut winning trades short because, deep inside, you don’t think you’ll be able to achieve large profits?

7) Is trading making you happy, proud, fulfilled, and content, or does it more often leave you feeling unhappy, guilty, frustrated, and dissatisfied?

8) Are you making trades because the market is giving you opportunity, or are you placing trades to fulfill needs–for excitement, self-esteem, recognition–that aren’t being met in the rest of your life? (more…)

Jesse Livermore: Preparation And Experience Is Required For Success

  
  Education
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“Of course the same things happen in all speculative markets. The message of the tape is the same. That will be perfectly plain to anyone who will take the trouble to think. But people never take the trouble to ask questions, leave alone seeking answers. The one game of all games that really requires study before making a play is the one he goes into without his usual highly intelligent preliminary and precautionary doubts. He will risk half his fortune in the stock market with less reflection than he devotes to the selection of a medium-priced automobile.”

If-Then

  
  Education
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READ atleast twice and Read Daily :

The idea of IF-THEN scenarios in trading is often misconstrued one. I often see it being interpreted in a sense of predicting stock’s action. A trader trying to apply it in this sense tries to think in terms ‘If a stock does this, it’s going to do that“. This approach is more acceptable if a trader thinks in terms of probability instead of certainty in which case the above sentence becomes “If a stock does this, it’s likely to do that“. Nothing’s wrong with that as long as a trader realizes that probability is just that – a probability that is going to work in a statistically valid number of samples but will not predict the outcome of each given case.

I, however, apply IF-THENs in a slightly different manner. For me it’s about defining my own action in response to market fluctuations. My IF-THEN is a scenario where IF is what market does and THEN is what I do in response. My intepretation thus becomes ‘If a stock does this, I do that”.

Certainly, it’s a derivation of the version above – you can arrive to it from “if a stock does this then it’s likely to do that, so I am going to react in such and such way”. My version is just more cut and dry.

What are the advantages of this aproach and why do we need to build a set of such scenarios? (more…)

Full Examiner Report of Lehman Brothers Bankruptcy

  
Analysis, Education
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Here are links to the the “Report of the Examiner in the Chapter 11 proceedings of Lehman Brothers Holdings Inc.” from Anton R. Valukas of Jenner & Block.  It looks like they hid some assets, look at Volume 3 – “Repo 105”.  Zero Hedge blog has a detailed post on Repo-105 and Bloomberg has a story (JPMorgan, Citigroup Helped Cause Lehman Collapse, Report Says).

Volume 1- Sections I & II: Introduction, Executive Summary & Procedural Background; Section III.A.1: Risk
Volume 2- Section III.A.2: Valuation; Section III.A.3: Survival
Volume 3- Section III.A.4: Repo 105
Volume 4- Section III.A.5: Secured Lenders; Section III.A.6: Government
Volume 5- Section III.B: Avoidance Actions; Section III.C: Barclays Transaction
Volume 6- Appendix 1
Volume 7- Appendices 2 – 7
Volume 8- Appendices 8 – 22
Volume 9- Appendices 23 – 34

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