A conversation with Nassim Taleb, best-selling author; scientific advisor, Universa Investments at the 2018 Prime Quadrant Conference in Toronto.
Nassim Taleb At The 2018 Prime Quadrant Conference
Q1 hedge fund letters, conference, scoops etc
Transcript
So just to start off you know Nassim you actually have some prepared remarks I'd love for you to take it off and then we'll continue the conversation.
Yes. I mean it's not that they're not remarks by the way so. They're much less remarks and pictures I want to show. So I just wrote a book called "Skin in the Game" which is Volume 5 of a collection called Circle. And it takes a while to figure out what you're writing what your subject is you know vaguely the details and then little by little things start to.
Sort of like mix together to provide a little more unity to coalesce.
So it took me a long time and now I've figured out what it was that I was writing about for the past 20 years. She had started in life as a trader. I was a trader then I started doing that kind of stuff.
So I didn't start like I don't series I'm going to practice and I noticed that when you start with practice and then start figuring out the theory that about 90 percent of the theories you know are nonsense and then something useful. But then that process of going from practice to theory is very different from the one that people have you know usually drawn from theory of study and then they apply.
And of course there was supply and the other. So I became progressively a I start retiring and pauses for also. But by doing mathematics of risk mostly mainly because. Of lack of other hobbies or incompetence in other hobbies like I'm not very competent at tennis.
Not competent at chess I lose concentration which annoys the person I'm playing with somehow. So I had to spend my days doing this. So and I do this I start discovering some stuff. The first thing I discovered is that with that skin in the game this is what happens to a professional skin in the game is really when you have something at risk in any situation. So you learn and also it's the filtering. So I'm not going to talk my skin the with one of its consequences. What is it that we don't quite get about probability and stuff like that. So the first thing I'm going to talk about is fat tails fat tails was a subject that.
Fat deals are not tails. I feel for animals that describe it for a few minutes.
What's the difference. It's sort of the subject of a Black Swan saying practically everything you study is statistics that school is useless for the domain I call extremist as as might affect every single and pushing you build that school will not work and that's how I see us I think randomly to people. And this cuts called a catastrophe principle I think randomly to people from the population randomly and I measure them and I have a very unlikely sample of a total height of four point one. What's the most likely combination 10 centimeters and four metres.
He didn't care. They let we see which things I'm kind of them. Okay. What's it gonna be. 150 and 260 No.
It 2 2 2 or 5 2 5 so.
So in that domain called mediocre start if you have a bad year it's not going to come from one bad day. You've got to come from two of us as unlikely.
It's much more likely to have two times three similar events than one time six sigma or to type fast in my rounds. One time and said well we must by definition tells us what a gaussian is what the domain is and. That no extreme can really blow you up if you diversify. The portfolio theory is based on that you're not going to have if you have a hit it's not one stock it's a combination of stocks. If you have one mishap and not one combination of things six sigma all of that fails.
Because I'm going to give you good that would have high net worth individual lesson by now 18 thirty six million is not how that works anymore.
And with inflation now tough to get inflation but us it's real money. Yes yes. OK. So you make it thousand euros right although you know in a few hours a pound. So I.
