Born in 1960, Nassim Nicholas Taleb is a Lebanese-American mathematical statistician, author, risk analyst, and options trader. His work focuses on problems of uncertainty, randomness, and probability. He created the risk-hedging technique 'Tail risk hedging' or 'Black swan protection' that aggregates portfolio exposure in order to hedge against extreme market volatility. According to the Sunday Times, his 2007 book 'The Black Swan' is one of the twelve most influential books since World War II.

 

NASSIM NICHOLAS TALEB TRADING TIPS

 

■ Knowledge is in dealing with what we do not know

Knowledge and discovery are not so much in dealing with what we know, as in dealing with what we do not know.

• We are trained to take advantage of the information that is lying in front of our eyes, ignoring the information that we do not see

 

■ What characterizes real speculators like Soros from the rest

What characterizes real speculators like Soros from the rest is that their activities are devoid of path dependence. They are totally free from their past actions. Every day is a clean slate.

• My lesson from Soros is to start every meeting at my trading boutique by convincing everyone that we are a bunch of idiots who know nothing and are mistake-prone but happen to be endowed with the rare privilege of knowing it.
• George Soros, when making a financial bet, keeps looking for instances that would prove his initial theory wrong.

 

 

■ The nature of randomness in the financial markets

At a given time in the market, the most profitable traders are likely to be those that are best fit to the latest cycle. This does not happen too often with dentists or pianists, because of the nature of randomness.

 

■ It is not about how likely an event will happen, it is about how much is made when it will happen

Alas, investors and businesses are not paid in probabilities, they are paid in dollars. Accordingly, it is not how likely an event is to happen that matters, it is how much is made when it happens.

  

■ Know your weaknesses

My sole advantage in life is that I know some of my weaknesses.

 

■ Keep your mistakes small enough so you can survive them

All they need is to keep their mistakes small enough so they can survive them.

• If a gambler has a risk of terminal blowup, the potential returns of his strategy are totally inconsequential.

 

■ The right question is not for an opinion

Never ask anyone for their opinion, forecast, or recommendation. Just ask them what they have, or don’t have, in their portfolio.

• If you go to the doctor, never ask the doctor what you should do. Ask him what he would do if he were in your place.

 

■ The track record of economists in predicting events is monstrously bad

The track record of economists in predicting events is monstrously bad. It is beyond simplification; it is like medieval medicine.

 

■ The asymmetric nature of capitalism and bad banking practices are behind the financial crisis

It is the asymmetry of the bonus system that got us here. No incentives without disincentives: capitalism is about rewards and punishments, not just rewards.

• We should ban banks from risk-taking because society is going to pay the price.
• Bailing out every bank that fails makes the system riskier, not safer.
• Banking is a very treacherous business because you don't realize it is risky until it is too late. It is like calm waters that deliver huge storms.
• If every plane crash makes the next one less likely, every bank crash makes the next one more likely.

 

■ I don't read the papers

I don't read the papers; I stopped reading the papers. I read the papers only during periods of crisis, and I think papers are too long on a regular day and too short days when we have a crisis.

 

■ Someone who predicts will be fragile to prediction errors

You can’t predict in general, but you can predict that those who rely on predictions are taking more risks, will have some trouble, perhaps even go bust. Why? Someone who predicts will be fragile to prediction errors.

• Numerical prediction leads people to take more risks.

 

■ Economic phenomena are unpredictable

We know from chaos theory that even if you had a perfect model of the world, you'd need infinite precision in order to predict future events. With sociopolitical or economic phenomena, we don't have anything like that.

• Invest in preparedness, not in prediction. 

 

■ The ability to accept failure

What America does best is produce the ability to accept failure.

 

■ Traders when they make profits vs when they lose

Traders, when they make profits, have short communications; when they lose they drown you in details, theories, and charts.

 

■ Enjoy learning outside of university

Steve Jobs, Bill Gates, and Mark Zuckerberg didn't finish college. Too much emphasis is placed on formal education. I told my children not to worry about their grades but to enjoy learning.

 

■ The best philosophers were not academics

The best philosophers were not academics but had another job, so their philosophy was not corrupted by careerism.

 

■ The culture of financialization

We have this culture of financialization. People think they need to make money with their savings rather with their own business. So you end up with dentists who are more traders than dentists. A dentist should drill teeth and use whatever he does in the stock market for entertainment.

 

■ Missing a train is only painful if you run after it

Missing a train is only painful if you run after it! Likewise, not matching the idea of success others expect from you is only painful if that’s what you are seeking. 

 

■ The difference between technology and slavery

The difference between technology and slavery is that slaves are fully aware that they are not free.

 

■ Intelligence consists of ignoring things that are irrelevant 

They think that intelligence is about noticing things are relevant (detecting patterns); in a complex world, intelligence consists in ignoring things that are irrelevant (avoiding false patterns)

 

■ Trial and error

Trial and error is freedom.

 

■ Personal debt is the wrong way

I have never had personal debt and never will.

• When you don’t have debt you don’t care about your reputation in economic circles – and somehow it is only when you don’t care about your reputation that you tend to have a good one.

 

■ Wallstreet thinks only of bonuses

I don't know anyone on Wall Street who goes to work every day thinking of anything but how to increase their bonus.

 

 

■ Nassim Nicholas Taleb  (Derivatives Trader & Author)

Forex-Investors.com (c)

 

 

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