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  • #1
  • First Post: Nov 26, 2005 1:24am Nov 26, 2005 1:24am
hi guys,

Just read a book by nassim taleb , it tells how traders , no matter how well qualified and experienced he may be, may lose it all due to random events outside our control.

LTCM is one good example.Anyone of you read it?
  • #2
  • Nov 26, 2005 2:43am Nov 26, 2005 2:43am
Quoting Blackship
hi guys,

Just read a book by nassim taleb , it tells how traders , no matter how well qualified and experienced he may be, may lose it all due to random events outside our control.

LTCM is one good example.Anyone of you read it?
I read it in my language version sone years ago........It's like the author want to say thet you should live your life with self-awareness. DO not let the destiny fool your mind....something like that
  • #3
  • Nov 26, 2005 5:44am Nov 26, 2005 5:44am
I don't think I am allowed to post links on this site until I have done 50 posts (?) but if you are interested in what Taleb has to say take a look at his web-site. There are lots of articles/interviews etc that are good reading. I have read some of this stuff (not the book though) and its pretty refreshing.
"Always bet on black"
  • #4
  • Nov 26, 2005 9:49am Nov 26, 2005 9:49am
pardon me, what is LTSM?
  • #5
  • Nov 26, 2005 11:19am Nov 26, 2005 11:19am
Long Term Capital Management was a hedge fund set up by the top dogs in financial academia. They were given unprecedented leverage by the banks and when it blew up due to unexpected mkt volatility, there was a risk the whole global financial system was going to take a very big knock. Just google it, and read the amazing story.
"Always bet on black"
  • #6
  • Nov 26, 2005 8:18pm Nov 26, 2005 8:18pm
Quoting Blackship
hi guys,

Just read a book by nassim taleb , it tells how traders , no matter how well qualified and experienced he may be, may lose it all due to random events outside our control.

LTCM is one good example.Anyone of you read it?
My opinion, wise traders don't lose everything because of random events outside control. That's why people apply risk control. Not to limit their lossed, but to manage to live after random events, things like 9/11, London Bombings, tsunami and so on. Keep in mind that these random events can work against you or with you in the forex market, so a lot of them will actually cancel the effect of each other. For example, in Sep 2001, there were no good reasons to be short the dollar as the economy was very bad and interest rates for the USD were falling by 50 basis points, so a long dollar position was not likely or at least must be taken with caution. Same thing with the GBP before the London Bombings.


Thanks,

Nader
  • #7
  • Nov 26, 2005 11:54pm Nov 26, 2005 11:54pm
Quoting abobtrader
Long Term Capital Management was a hedge fund set up by the top dogs in financial academia. They were given unprecedented leverage by the banks and when it blew up due to unexpected mkt volatility, there was a risk the whole global financial system was going to take a very big knock. Just google it, and read the amazing story.
the event that caused the demise of LTCM was that the Russians defaulted on some big loans, sending the bond market into a state of insanity. LTCM had a hugely leveraged arbitrage spread trade that got totally fucked due to the situation. they never thought that there was a possiblitiy of the russians defaulting, it was like a once in a lifetime event and they were not prepared. they were so highly leveraged because the trade was a "guaranteed" winner. so much for that!

anyway, all the big financial institutions like JP morgan and Goldman had to come in and bail them out.

btw, just to make you feel better the next time you blow an account, LTCM was known for having the brightest PhDs in the world working for them. these geniuses are the ones who lost billions for the company.

btw2, all the guys from LTCM are still in the hedgefund business and still making billions. quite a forgiving industry we are in
Relax and be happy.
  • #8
  • Nov 27, 2005 7:54am Nov 27, 2005 7:54am
Hey Merlin, its funny. The LTCM geeks are now managing more hedge fund money than when they they had when when they blew up LTCM !
"Always bet on black"
  • #9
  • Jan 11, 2006 11:26pm Jan 11, 2006 11:26pm
This (as well as a painful personal experience) is why I'm leery of selling naked options. You'd think people who had been around a while and who gain your trust would know better! Actually I here Fiji Trader saying "YOU should know better..."
  • #10
  • Jan 12, 2006 2:39am Jan 12, 2006 2:39am
Quoting vneufeld
This (as well as a painful personal experience) is why I'm leery of selling naked options.
whats wrong with naked options? thats the only way i sell em

remember, selling a put is the exact same thing as a covered call. makes you think about the risk profile a little differently, huh?
Relax and be happy.
  • #11
  • Feb 12, 2006 10:16pm Feb 12, 2006 10:16pm
Quoting narafa
My opinion, wise traders don't lose everything because of random events outside control. That's why people apply risk control. Not to limit their lossed, but to manage to live after random events, things like 9/11, London Bombings, tsunami and so on. Keep in mind that these random events can work against you or with you in the forex market, so a lot of them will actually cancel the effect of each other. For example, in Sep 2001, there were no good reasons to be short the dollar as the economy was very bad and interest rates for the USD were falling by 50 basis points, so a long dollar position was not likely or at least must be taken with caution. Same thing with the GBP before the London Bombings.


Thanks,

Nader
Hmm. Not so sure about that. I like the saying: 'If the only way you could die was to be struck by lightning then you would die by being struck by lightning'. If you trade long enough, you will lose all of your money! If the only way you are going to stop trading it by losing your account, then you will lose your account.

It is a bit cryptic, but think about it for a while.

Simon
  • #12
  • Mar 5, 2006 5:19am Mar 5, 2006 5:19am
Good, entertaining read I thought. The central theme for the book is presented in his "Table of Confusion" which he outlines in the Prologue and refers back to in the rest of the book (see below).

His stories on fictitious traders (loosely based on real life characters he met I think) holds lessons for all. You might be able to spot a few of your own traits in "Nero Tulip", "John the High Yielder", "The (un)/Happy Dentist", "Carlos the Emerging Markets Wizard" and so on.

He introduces the concepts behind his "monte carlo" generator which is a computer simulation to generate a multitude of random, sample paths or "alternative histories" on any given event. I think his trading research company (Empirica) uses this extensively to come up with new trading programs.

I like the fact that even though he has studies this form of applied mathematics more than most, he is always alert to being fooled by the topic itself and is always vigilant against it in his trading and personal life. He makes no bones about his own character flaws which is pretty humbling. (How many of us could say we do the same?)

A lot to chew over and probably another re-read is in order to fill in the missing gaps.

OK look at the table below, how many times have you mistaken the left for the right?
Attached Image
  • #13
  • Mar 5, 2006 10:24am Mar 5, 2006 10:24am
nice post isotonic (and cool table!)

for most humans I think the level of randomness and probability that permeates our lives can perhaps be a little too much to comprehend. In the world of finance, I do think very few 'lucky idiots' become market wizards; indeed, all the interviews i have read of top traders suggest a pretty high level of intelligence and sophistication. However, this can make the problem worse; the apparant intelligence of the traders may have nothing to do with their performance, which could well be above the average by pure chance. Whereas we wouldn't listen to the advice of an obvious 'lucky idiot', we will happily listen to the thoughts of the 'intelligent but lucky investor', perhaps even paying for the privelige. We shouldn't mistake financial success with true intelligence.

PS - I have read Market Wizards and just finished the New Market Wizards and they are great books, but perhaps I could learn just as much from a compendium of professional investors who have lost their stakes and called it quits.
"Always bet on black"
  • #14
  • Mar 5, 2006 2:34pm Mar 5, 2006 2:34pm
yes the central character in the book is that of the "lucky idiot" who attributes his success to skill when it could of been just pure luck: whether it is a trader, businessman, scientist, fed official or president.

here is my beef with randomness: first a quick definition is in order:

ran·dom adj.
1. Having no specific pattern, purpose, or objective: random movements. See Synonyms at chance.
2. Mathematics & Statistics Of or relating to a type of circumstance or event that is described by a probability distribution.
3. Of or relating to an event in which all outcomes are equally likely, as in the testing of a blood sample for the presence of a substance.

Idiom: at random Without a governing design, method, or purpose; unsystematically: chose a card at random from the deck.

[From at random, by chance, at great speed, from Middle English randon, speed, violence, from Old French, from randir, to run, of Germanic origin.]
ranhttp://img.tfd.com/hm/GIF/prime.gifdom·ly adv.
ranhttp://img.tfd.com/hm/GIF/prime.gifdom·ness n.


 If you look at the various definitions then (to me at least) they all indicate an absence of objectivity, whereas I think that the whole thing is subjective, or relative. In a similar maner to Einstein's general theory of relativity in that time and space are relative to the perspective of each person. Everybody has their own set of criteria, intuition or whatever that can be brought to bear on the subject matter in hand.

So for example, that could mean for what may seem like a random chart patern to an amateur trader reading a chart on which to base a trade, may be the opposite to a pro. Both are examining the same subject matter (say a 15min GBPUSD chart) but once sees nothing while the other spots an opportunity for profit. So who is right, who is wrong? Does making a profit or loss prove or disprove their assertions?

If all possible trades for this pair are made either by humans or automation (computer programs) or an interaction of the two then on some level it should be possible to work out all these interactions to arrive at the historical movement of the pair. Just because one individual or large corporation can't figure it out, is he right just to attribute some price action or moves to randomness?

Maybe just The Creator, or God Knows!

Quoting abobtrader
nice post isotonic (and cool table!)

for most humans I think the level of randomness and probability that permeates our lives can perhaps be a little too much to comprehend. In the world of finance, I do think very few 'lucky idiots' become market wizards; indeed, all the interviews i have read of top traders suggest a pretty high level of intelligence and sophistication. However, this can make the problem worse; the apparant intelligence of the traders may have nothing to do with their performance, which could well be above the average by pure chance. Whereas we wouldn't listen to the advice of an obvious 'lucky idiot', we will happily listen to the thoughts of the 'intelligent but lucky investor', perhaps even paying for the privelige. We shouldn't mistake financial success with true intelligence.

PS - I have read Market Wizards and just finished the New Market Wizards and they are great books, but perhaps I could learn just as much from a compendium of professional investors who have lost their stakes and called it quits.
  • #15
  • Apr 9, 2016 11:37am Apr 9, 2016 11:37am
any comments to this thread after years ?
  • #16
  • Last Post: Apr 9, 2016 1:49pm Apr 9, 2016 1:49pm
Quoting Isotonic
2. Mathematics & Statistics Of or relating to a type of circumstance or event that is described by a probability distribution.

[...]

If you look at the various definitions then (to me at least) they all indicate an absence of objectivity, whereas I think that the whole thing is subjective, or relative{quote}


You're contradicting yourself ....
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