Joined
·
4 Posts
Hi Everyone,
This is my first post (hopefully of many)!
I was reading an article at theglobeandmail.com recently that's an interview Margaret Wente did with a man named Nassim Taleb. He's the author of a book called The Black Swan: The Impact of the Highly Improbable . Taleb was a derivatives trader on Wall Street who is EXTREMELY critical of bankers and economists and their role in the recent meltdown. The book is called The Black Swan because apparently everyone assumed black swans didn't exist until they were found in Austrialia many years ago. A black swan to Taleb now means something that happens that was highly unexpected (like a stock suddenly shooting up in price - a ten bagger so to speak).
The interview, which can be found here: http://www.theglobeandmail.com/repo...e-still-have-the-same-disease/article1286246/ is a pretty interesting read, but what really piqued my interest was his answer to this question:
Q: Now that you've painted such a rosy outlook, do you have any advice on how individuals can guard against losing 40 per cent of their money in this extremely risky world?
A: My advice is that instead of investing in medium-risk securities, you should put most of your money in very low-risk securities, and a little bit in high-risk securities. Then you might get a good black swan.
To me Taleb is basically advoating for keeping a huge percentage (80 percent maybe) of your money is low risk investments like short term bonds and cash equivalents and taking the rest and spreading it out between several really high risk investments. The hope being that you managed to choose at least one high risk stock that will grow rapidly. This idea intrigued me for two reasons:
1) it goes against the "norm" for many which is to invest in medium risk blue chip stocks; and
2) it actually doesn't sound like that bad of an idea.
Think about it, using that strategy, any given moment the majority of your money is safe and sound and a small amount of it has the potential to double, triple, or more depending on what high risk stocks you chose (with absolutely no guarantees of this happening).
Now my question is, how would an average investor find "high risk" stocks to invest in? What criteria would you use to decide if something was high risk? A start up? A penny stock? It really requires a complete rewiring of your investing brain because many of us are used to looking for stong, blue chip, dividend paying companies. What do you guys think?
Note: Personally I don't have any plans to follow this strategy. I'm happy with my global couch potato portfolio for the time being.
This is my first post (hopefully of many)!
I was reading an article at theglobeandmail.com recently that's an interview Margaret Wente did with a man named Nassim Taleb. He's the author of a book called The Black Swan: The Impact of the Highly Improbable . Taleb was a derivatives trader on Wall Street who is EXTREMELY critical of bankers and economists and their role in the recent meltdown. The book is called The Black Swan because apparently everyone assumed black swans didn't exist until they were found in Austrialia many years ago. A black swan to Taleb now means something that happens that was highly unexpected (like a stock suddenly shooting up in price - a ten bagger so to speak).
The interview, which can be found here: http://www.theglobeandmail.com/repo...e-still-have-the-same-disease/article1286246/ is a pretty interesting read, but what really piqued my interest was his answer to this question:
Q: Now that you've painted such a rosy outlook, do you have any advice on how individuals can guard against losing 40 per cent of their money in this extremely risky world?
A: My advice is that instead of investing in medium-risk securities, you should put most of your money in very low-risk securities, and a little bit in high-risk securities. Then you might get a good black swan.
To me Taleb is basically advoating for keeping a huge percentage (80 percent maybe) of your money is low risk investments like short term bonds and cash equivalents and taking the rest and spreading it out between several really high risk investments. The hope being that you managed to choose at least one high risk stock that will grow rapidly. This idea intrigued me for two reasons:
1) it goes against the "norm" for many which is to invest in medium risk blue chip stocks; and
2) it actually doesn't sound like that bad of an idea.
Think about it, using that strategy, any given moment the majority of your money is safe and sound and a small amount of it has the potential to double, triple, or more depending on what high risk stocks you chose (with absolutely no guarantees of this happening).
Now my question is, how would an average investor find "high risk" stocks to invest in? What criteria would you use to decide if something was high risk? A start up? A penny stock? It really requires a complete rewiring of your investing brain because many of us are used to looking for stong, blue chip, dividend paying companies. What do you guys think?
Note: Personally I don't have any plans to follow this strategy. I'm happy with my global couch potato portfolio for the time being.