The Black Swan by Nassim Taleb

November 27th, 2012

Chairs:  Henry To, CFA and Anthony Mak, CFA

To his admirers, he might as well be the second coming of Socrates. To his critics, he is sometimes seen as a heretic. Love him or hate him, you cannot ignore his controversial ideas and radical views. Ever since 2008 his ideas have taken the world by storm. Then just as quickly as his voice proliferated in the airwaves and in print, he vanished from the media and went into a self-imposed seclusion. Yet the man who has stirred up the establishment was not always a rebel.

Trained at Wharton, Nassim Taleb followed the path of a typical promising young financier and went to work as a trader for a number of big Wall Street firms, including UBS, Credit Suisse First Boston, Bankers Trust, and BNP Paribas. That is when he realized that the big players in the market were not necessarily the best and the brightest. He thought they were relying on models that were deeply flawed and lulling themselves into a sense of certainty that was not only undeserved but dangerous. Putting money where his mouth was, he began to structure trades meant to capitalize on this insight, the idea that the market was not adequately accounting for the likelihood of unexpected and improbable but high impact events. In other words, he thought risk was under-priced. His strategy was to scoop up cheap deeply out-of-the-money options and wait for the rare events to happen. This is akin to buying lottery tickets everyday and waiting to hit the jackpot one day to recoup all the previous losses and then some, except in Taleb’s case the odds of winning were in his favor.

He did hit the jackpot not just once but twice, one in 1987 and another in 2008. It was in 2008 when people began paying attention to his once obscure book published in 2007 that lays out his ideas. The book Black Swan goes right to the heart of the economic and financial establishment and rips it apart. Nothing is too sacrosanct for him to touch. In fact it seems like the holier the theory, the more he goes on the attack. He calls the Gaussian bell curve an “intellectual fraud.” He also thinks very little of Fischer Black and Myron Sholes and even less of their equations that earned them the Nobel Prize. Even the CAPM model and Sharpe ratio that we were made to study so much for the CFA program did not escape his assault and are dismissed because they are based on the normal curve.

Now then what are we to do knowing these potential shortcomings in the tools that many of us use regularly in our profession? Taleb suggests we follow the tradition of classicists by observing and building up knowledge based on empirical evidence. I say we follow the example of another Greek philosopher, Epicurus, who tells us that we should gather with friends as often as we can for our own well being. At our gathering we will be discussing the book, but having read it is not a requirement. Just come with an open mind and curiosity, and we will provide the intellectual stimulus you crave and perhaps an inspiration for you to take away.

*The author will not be in attendance

As a participant in the CFA Institute Approved-Provider Program, the
CFA Society of Los Angeles has determined that this program qualifies
for 1 credit hours. If you are a CFA Institute member, CE credit for
your participation in this program will be automatically recorded in your CE Diary.

Registration Links (Must register to attend)
CFALA Members: $10.00 (place cursor on amount for link)
Non-members: $15.00 (place cursor on amount for link)

Time: 5:30pm: check-in and reception with wine and cheese
          6:00pm: book discussion

Location: Biltmore Court
                  520 S. Grand Ave., Suite 370
                  Los Angeles, CA 90071

Parking: Hotel Valet Parking: $20.00
                Self-Parking at AT&T Center (611 S. Grand Ave., Los Angeles, CA 90071 -
                Driveway just South of Hilton's Checkers Hotel): $9.35


YouTube Facebook Twitter Instagram LinkedIn