First with Financial Comment from Arabia

Professor ‘Black Swan’ Taleb visits Dubai

with 2 comments

Professor Nassim Nicholas Taleb of New York University and author of the book ‘Black Swan’ explained to the Hedge Funds World conference in Dubai how to build a robust portfolio not at the mercy of rare events.

Four years ago Professor Taleb addressed the same event and was practically booed off the stage. He got a much better reception today as most of his former pessimistic predictions have proven absolutely right.

Black Swan events

In brief his thesis is that financial markets are always high risk because they are always at the mercy of rare or Black Swan events, like market crashes. What is often sold as a low-risk investment is therefore no such thing.

To counter this problem the New York professor recommends keeping 80-90 per cent of a portfolio in metals, from precious metals like gold, silver and palladium to copper. These metals should be treated as a currency without a government to interfere with supply.

Then he reckons that having secured your position in these hard assets you might as well be as adventurous as possible. Indeed, he thinks that as low-risks so often turn out to be risky, you might as well invest in what are known to be high risk assets in the hope of boosting overall portfolio performance.

ArabianMoney can see the logic in this. However, does that not lead investors back to the very hedge funds that the good professor once so castigated? These are a high risk, high reward asset class.

Hedge funds

The Hedge Funds World Middle East 2010 conference meets in better spirits than this time last year when markets were on the floor. Attendance also seems to be up, although the number of funds present is a fraction of what it was five years ago.

Popular trading strategies now include foreign exchange, distressed debt, emerging markets and gold equities. Of course, the surviving funds generally performed much better in 2009 than 2008 and some impressive gains are being touted to prospective investors.

If survival of the fittest means anything then the year’s crop of hedge funds should be a better investment than for sometime. There is also far less leverage present, reducing risk by keeping debt down, a principle of which Professor Taleb is also an arch exponent.


Written by Peter Cooper

March 1, 2010 at 4:22 pm

2 Responses

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  1. Another Paul B. ‘beware : the end is nigh’ Ferrell article on the MarketWatch web site dated 2 March. His articles are starting to scare me, and I live in a house that is paid for, in a climate where I could get by with little heat in the winter! I hope that he is just mad that he lost some of his fortune in the crash, and is just trying to get even with the banksters.
    Unfortunately, I can’t fault his logic and he is a former Wall Street insider. His comments on Wall Street’s, and government’s lack of morality remind me of something that I recently wrote. I’ll sit in cash for a while.

    Bill Simpson in Slidell

    March 2, 2010 at 11:18 am

  2. As I gaze into my crystal ball during these perilous times, methinks gold and silver mining stocks would be a much better place to park the money that is not used to buy the physical metals.

    . . . and at much lower risk than placing a reasonable sum of money into a hedge fund.


    March 1, 2010 at 8:54 pm

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