Tuesday, October 30, 2007

A Few Good Reads

While I know that most of my fanbase (ha!) has probably already dissected these pieces every which way already, I have to admit that they make for interesting reads and re-reads. I've kept them up in my browser persistently since stumbling upon them, and flip back to them regularly to look something up or just remind myself about the tendency of markets to strike when least expected. Minsky moments and all that.

First up is the Malcolm Gladwell piece on Nassim Nicholas Taleb entitled "Blowing Up". I know I don't need to introduce him to most of you. For the rest, well, that's what Google excels at. Start with his website.

Next we have the New Yorker's big spread on Victor Niederhoffer's return to and subsequent dismissal by the markets. Fascinating, in more ways than one. The Gladwell piece looks at Niederhoffer briefly as well, and if I can find it, I'll post the other article I read about him recently. Talk about overexposure.

Finally, The American's Hunt for Black October, seeking to expose the reasons for Black Monday, 1987. An interesting, if speculative, read. I love this kind of history stuff, and I'd rather learn from someone else's mistakes than make my own. I've got enough of those.

Honestly, while I like Taleb's approach to the market, and I respect his vigilance in preparing for a Black Swan event, there's something missing. It actually reminds me of how I drive, and I'll get another post up on how good driving and good investing rhyme in the near future. While we don't want to pick up nickles - or God forbid, pennies - in front of steamrollers, you can't just sit around waiting for Doomsday either. This, in the simplest of terms, is what I imagine doomed Empirica. Whether things are different now with his newest venture, we'll have to see. There has got to be some participation in the market besides collecting premiums on options, because the stability that would allow that to be a viable past-time can disappear in mere moments. Stability breeds instability, right?
Or that stability may not generate enough returns to allow your capital base to last until the return of volatility. And what's plan B when instability rears its head?

Of course, you could probably make the argument that by operating in this way, Taleb is playing his intended course perfectly. In stability, clip your coupon (aka option premiums). When volatility returns, hopefully you're on the right side of the trade and that's where the strategy shines -- if you're nimble enough.


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