Taleb and Trading

[icetonez]

I just read Taleb's Fooled By Randomness for the first time and really enjoyed it. I look forward to reading The Black Swan next.

Taleb uses anecdotes from all fields to explain how we as humans are not genetically predisposed to understanding probability and randomness. We're actually wired and quite good at finding patterns where there are none.

Aside from his thesis, what I most remember about the book were his interspersed tips on trading. One of his first tips is the use of the stop-loss sell order. This makes sense as his whole mantra is to avoid at all costs the total meltdown. But I remember reading somewhere (probably on this forum) that sometimes stop-loss orders don't work when the stock goes into an absolute freefall; the marketmaker skips over some sell orders if the stock falls too fast?

Taleb doesn't trade stocks himself, only derivatives. Specifically he buys deep out of the money options; taking small loses most days and waiting, sometimes years for a huge payoff spured from a world-changing event. This strategy which I imagined would need a ton of money to start facinated me. However, NajorfDefense mentioned in another thread that this strategy isn't nearly as effective today as many of his readers adopted this strategy. I e-mailed Taleb and he said he is on leave from finance for another year. (he will answer anyone by e-mail at least once)

Taleb bashes journalists, especially financial pundits throughout the book owing to their noise spewing ability. He does not use the Wall Street Journal for trading ideas, and he leaves CNBC on the television, but without volume. He suggests The Economist for deriving ideas to trade with. I never watch TV pundits myself, nor do I read the Wall Street Journal, but I am tempted to start subscribing to The Economist for only ~$100/year.

[turnipmonster]

the economist is easily the best newsmagazine on the market, even if you get 0 tradable info from it you won't regret getting a subscription.

[DcifrThs]

[ QUOTE ]
the economist is easily the best newsmagazine on the market, even if you get 0 tradable info from it you won't regret getting a subscription.

[/ QUOTE ]

in my current lots-of-time-searching-for-next-job state, i am doing tons of reading. the economist is, by far, some of the best stuff to read. it is almost entirely unbiased (or if it is i can't tell) & lays out what is going on all over the world. special reports are in depth & worth reading. and it costs basically nothing.

i have subscriptions to WSJ, FT, & economist. i'd rate their use to me as 4/10, 7/10, 10/10.

Barron

[Tupacia]

There were two interviews in The House of Money with really successful macro hedge funds where both traders said they thought they could maintain their level of returns if the only research they ever did was reading the Economist. I was shocked when I read it the first time, and then I was astonished when another trader said something similar.

[DcifrThs]

[ QUOTE ]
There were two interviews in The House of Money with really successful macro hedge funds where both traders said they thought they could maintain their level of returns if the only research they ever did was reading the Economist. I was shocked when I read it the first time, and then I was astonished when another trader said something similar.

[/ QUOTE ]

i find that extremely difficult to believe. it's easy to say but c'mon, no other research?

i could understand if they meant that the economist is best used if you think about what is written and how you'd take it further, verify it, or what would need to be true for the idea to be true, & false. then think about what the market has priced in and how far off you think the market is from wher eyou think it should be?

then i could see how they could maintain those returns. otherwise i dont see how one could just trade off the economist w/o further research.

maybe im just too bent on the research part of it, or maybe the traders were massivly specialized or just bad (not likely since "successful macro hedge fund" is stated). in those cases though, it's easier to maintain your returns w/ your current knowledge (and it's easiest to maintain poor returns lol)

doesn't sound like either of those are the case though so if they could keep up their IRs at their expected level via trading off the economist w/o further research that is mad impressive.

my best guess is that they meant "maintain returns...with further research" into ideas generated from the economist. not that they'd go from reading room to trading room.

Barron

[ConstantineX]

[ QUOTE ]
the economist is easily the best newsmagazine on the market, even if you get 0 tradable info from it you won't regret getting a subscription.

[/ QUOTE ]

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