Nassim Taleb, an odd man out among all the investment gurus that have been discussed so far.
Can we actually call Taleb an investment guru?
Whereas with previous gurus I showed you many of their historic results and investment criteria, that would not cover the scope of Nassim Taleb’s story.
He may be a former derivatives trader, but he is best known for his book “The Black Swan, the Impact of the Highly Improbable”. In this book, Taleb tells about the mistakes of humanity in extreme situations. In that respect we can better call him a philosopher than an investment guru.
In this article you will read what his values and focal points are.
So why discuss Taleb in this section? Several years ago Taleb travelled to Amsterdam to give a seminar (click here for a video report of the meeting). In this meeting he discusses the moral of his book (The Black Swan).
He makes a distinction between the country Mediocristan, in which no major exceptions or outliers exist and everything is perfectly measurable, and Extremistan, the world in which we live.
Also in Extremistan, events are predictable to a large extent, but there will always be situations that are so extreme that no one can predict it. What we can learn from these situations: to keep our mistakes (or to speak in investment jargon, losses) as small and as few as possible and to seize our opportunities (profits).
The recent price drops in August 2016, the repeatedly delayed interest rate hike and the uncertain situation in China could just be triggers to launch a new extreme situation.
A good time to learn from Taleb.
Talebs investment success is almost entirely due to the crises of 1987, 2000 and 2008. Currently he is only giving advice to Universal Investments. Universal mainly bases its investment transactions on the Black Swan principles by Nassim Taleb.
During the crisis of 2008 the results of the investors invested in Universal ranged from 65 to 115 percent. Not a bad score in a market with mostly losers. Taleb and his followers thus did not really suffer from the crisis. But still he tackles the problem rather fundamentally, instead of trying to take advantage of the misery of others every time.
Trial and Error
According to Taleb the mistake is in the learning process from previous crises and especially the role the government plays in it. One of the objectives of the government is to avoid stress. It tries to achieve this through, for example, capital injections, tax cuts, and other subsidies to pump into the economy …
In addition, the largest financial institutions have the advantage of becoming “too big to fail.”
When a bank like ING in the Netherlands would fall, it could, besides the loss of tens of thousands of employees, pull other banks with it, causing) over 8 million individuals to lose their money(without DGS.
Taleb does not argue that there should be no protection at all, but due to the intervention and economic measures the government takes, the financial system never learns from the mistakes it made in the past.
No lessons are learned from the mistakes in the past and thus no improved version is created. The bank has made its bed and the taxpayer has to lie in it.
For example, whereas aircraft constantly improve by adjusting technical defects and studying plane crashes, the financial system remains behind due to the protections of the government.
At its core Taleb the financial markets to made more robust by learning from mistakes and to come up with a version 2.0.
Trial and error will bring humanity the farthest not only in science, but also in the financial world. However, he realizes very well that this should also bring a change of worldview with it.
The whole core of financial education should change from theoretical to playing with the financial data yourself and, as with inventions, discovering new principles.
Finally, a small investment tip by Nassim Taleb; Keep the costs as low as possible in times of turmoil. So do not start trading too much and patiently wait for your opportunities.
Additionally, investment guru Nassim Taleb advises to look for funds that do well in a volatile environment. Personally, I would like to add that a stop loss is not a luxury in times of crisis. As Taleb would say, “Make mistakes, but keep them as small as possible.”