Predicting The Next Black Swan

Of course the title is a joke as a true black swan is not reasonably predictable, at least not by more than a couple of people. Businessweek has an recent interview with Nassim Taleb whom I always enjoy reading.

Here is one quote I liked; “People think they need to make money with their savings rather with their own business.” I’ve mentioned many times his idea of going ultra conservative in t-bills with 90% of the portfolio and being very aggressive with the other 10% many times. While this is not really practical for most people the concept embedded in the quote and in the 90/10 portfolio concept is practical which I take as focusing on reducing volatility of the overall portfolio so that there is less personal consequence when the market goes down a lot. As I’ve said in the past, finding out the hard way you had to much volatility is a bad place to be.

In this article he offered a slightly different angle on the 90/10 which was making money in your business as one source of income, the most important source, with the 90% of savings being another followed by the 10%. In saying “you should have the consciousness that there is something called inflation” he might be suggesting TIPS. If he is suggesting TIPS he has company with Zvi Bodie. The newer TIPS can only have the par values go up or stay the same so if we continue on a deflationary path holders of the newer TIPS won’t have a problem (well, unless there is a default).

The last quote I’ll throw in was “The problem is that citizens are being led to invest in securities they don’t understand by people who themselves don’t quite understand the risks involved. The stock market is probably the best thing in the world, but the true risks of the stock market are vastly greater than the representations.” This is a different version of his comment previously that if people really understood the risks of the stock market they’d never put there money there.

The other side to this line of thinking is of course to save more money. This is easier said than done of course but there are consequences for every path; too much stock exposure and you risk blowing up, too little exposure and you risk not keeping up with the number your plan calls for.

Short post, we had a little fire (not pictured) yesterday that took longer than expected and backed up the entire routine.

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Predicting The Next Black Swan

Of course the title is a joke as a true black swan is not reasonably predictable, at least not by more than a couple of people. Businessweek has an recent interview with Nassim Taleb whom I always enjoy reading.

Here is one quote I liked; “People think they need to make money with their savings rather with their own business.” I’ve mentioned many times his idea of going ultra conservative in t-bills with 90% of the portfolio and being very aggressive with the other 10% many times. While this is not really practical for most people the concept embedded in the quote and in the 90/10 portfolio concept is practical which I take as focusing on reducing volatility of the overall portfolio so that there is less personal consequence when the market goes down a lot. As I’ve said in the past, finding out the hard way you had to much volatility is a bad place to be.

In this article he offered a slightly different angle on the 90/10 which was making money in your business as one source of income, the most important source, with the 90% of savings being another followed by the 10%. In saying “you should have the consciousness that there is something called inflation” he might be suggesting TIPS. If he is suggesting TIPS he has company with Zvi Bodie. The newer TIPS can only have the par values go up or stay the same so if we continue on a deflationary path holders of the newer TIPS won’t have a problem (well, unless there is a default).

The last quote I’ll throw in was “The problem is that citizens are being led to invest in securities they don’t understand by people who themselves don’t quite understand the risks involved. The stock market is probably the best thing in the world, but the true risks of the stock market are vastly greater than the representations.” This is a different version of his comment previously that if people really understood the risks of the stock market they’d never put there money there.

The other side to this line of thinking is of course to save more money. This is easier said than done of course but there are consequences for every path; too much stock exposure and you risk blowing up, too little exposure and you risk not keeping up with the number your plan calls for.

Short post, we had a little fire (not pictured) yesterday that took longer than expected and backed up the entire routine.

Submit a Comment

Your email address will not be published.

WP-SpamFree by Pole Position Marketing