Trying to Time Black Swan Events is a Losing Proposition

The post-financial crisis strategy of investing heavily in hedge funds that “offered protection should the markets plunge” has fallen out of favor, according to a recent article in The Wall Street Journal. Data from CBOE Eurekahedge shows that investors who gravitated toward “tail-risk” funds designed to perform during sudden market declines—events referred to as “black swans”– saw performance of these funds peak in September 2011 but “would have by now lost 55% of their money.” The extended bull market of the past eight years has hit tail-risk investors hard, says WSJ. These funds have lost money four of the five […]

Is This Crisis Really a “White Swan”?

In a recent article for the CFA Institute Conference Proceedings Quarterly, James Montier, Societe Generale Cross Asset Research’s global strategist, argues that the recent economic crisis and market plunge were not, as many have said, an unprecedented, unpredictable “black swan” event. Instead, he says the events have the characteristics of what psychologists call a “predictable surprise” — a “white swan”. “Volatility has indeed been higher historically, so today’s situation is not unprecedented,” Montier writes. “Furthermore, in the 1930s, not only was volatility higher, it remained higher. … Nor is the situation unpredictable. Each of the spikes we have witnessed in […]

J. Zweig on Forecasting & Black Swans

Jason Zweig unveils some great research in his latest piece for The Wall Street Journal (“Why Market Forecasts Keep Missing The Mark”). With all sorts of pundits making predictions for where the market will head in 2009, Zweig says you should be skeptical of their forecasts — and your own — a notion that I also examine in detail in my new book, The Guru Investor. Says Zweig, “Nearly all of us try forecasting the market as if each of the past returns of every year in history had been written on a separate slip of paper and tossed into […]

“Black Swan” Author: Situation “Vastly More Dangerous Than The Great Depression”

In his 2007 book The Black Swan, Nassim Nicholas Taleb warned of the dangers of a U.S. bank imiplosion. Now, with some of his fears having been realized as the country’s financial system steers though a crisis, Taleb tells Forbes that he doesn’t think the pain is over — and that “the situation is vastly more dangerous than the Great Depression.” “Everyone is in denial,” Taleb told Forbes’ Robert Langreth. “The car is in the middle of a crash and the parts are still flying, and we don’t know how far they are going to fly.” Taleb thinks the situation […]