Found in 10 comments
by jtraffic
Fat tails, long-term autocorrelation, discontinuities in price changes, divergent variances.

Aside from missing those observable features of the data, the theory is missing much about market agents: herding and contagion, information asymmetries, slow convergence to equilibrium, non-normally distributed errors, heterogeneous strategies and objectives, interaction effects, confirmation bias.

I'm just repeating Taleb, and his mentor Mandelbrot, of course:

Original thread
by gooseus
This is an article discussing one of the first chapters of The Black Swan by Nassim Nicolas Taleb. I thought it was a great part of a great book that really changed how I think about the world.

If you'd prefer to just read the actual chapters, it starts on page 33:

For those interested in expanding their (anti-)library:

Original thread
by unixhero
End to End exploration and explanation of how and why global economy works. - Peter Dicken, Global Shift

Any corporate finance textbook, probably; Brearly Myers, Corporate Finance,

Watch the Yale/Stanford lectures opencourseware on Financial Markets with Schiller;

Nicholas Taleb, Black Swan;

Harry Markopolos, Nobody Would Listen,

Michael Lewis, Liars Poker,

"Leveraged Sellout", Damn It Feels Good To Be A Banker,

Original thread
by gooseus
This is the sort of thread that hits me right in the wallet.

Here are some books I've given as gifts recently:

* The Knowledge: How to Rebuild Civilization in the Aftermath of a Cataclysm, Lewis Dartnell[1]

* The Black Swan, Nassim Taleb[2]

* Siddhartha, Hermann Hesse[3]

* The Happiness Trap, Russ Harris and Steven Hayes[4]

* Code, Charles Petzold[5]






Original thread
by josu
This was the same argument that salespeople would use whenever you stepped into a bank between 2005 and 2008 in Spain: "Real estate prices never go down". Then they did, and the most of the banking system in Spain went bankrupt. I'm using the Spanish example because it's the one that I am familiar with, but this happened pretty much in every developed country.

People tend to forget that generally we can't predict the future, specially not by extrapolating the data from the past few years. Ironically I think that economists tend to make this mistake more than any other group except for fortune tellers and weather forecasters.

Related to this I won't get tired of recommending "The Black Swan: Second Edition: The Impact of the Highly Improbable" by NN Taleb [1].


Original thread
by jmtame
It simply doesn't apply. A black swan is a rare event that is almost certain to happen (or at least one of them will) that will destroy vast amounts of wealth.

Black swan events are unpredictable and have enormous impact. Whether they're positive or negative is irrelevant. I'm reading the comments on this page and it seems many people are confused about the term. If you're interested in the connection to business and startups, check out this book:

In the very first sentence of the book description, it defines a black swan event: "A black swan is an event, positive or negative, that is deemed improbable yet causes massive consequences."

It's used quite a bit to describe startup success. Paul Graham wrote about this in one of his essays as well. I think the term fits perfectly for this blog post.

Original thread
by josu
>Could it be possible such a thing of a world's single currency?

With the world's currency, I didn't mean the "single" currency. I meant the world's currency like the gold was for many years, or the dollar is nowadays. You used to be able to go anywhere and either buy things with gold or exchange it fairly easily for local currency. Same thing happens nowadays with the dollar. However, the American dollar is losing its preponderance in world trade. The Chinese are pushing really hard to fill that spot with the yuan, this is one of the reasons behind their recent gold fever. [1] Even though, they don't have a gold backed yuan, and probably never will. Gold reserves, together with foreign exchange reserves[2] make a currency stronger, since in case that the Yuan starts to depreciate the Chinese Government can always sell those reserves and buy Yuan's increasing it's demand and consequently increasing its price.

>What is the subject that I should study to understand all of this and stop asking a question like that?

I have an economics background, and I've studied some finance, but I don't think I can give you a good enough answer. If you are really interested I rather you looked online or asked somewhere else (maybe reddit?). Nevertheless the straightforward answer is: Monetary Policy. However, in order to get into monetary policy, I believe that you'd probably need to know the basics about economics, the Mankiw is a good start [4]. Afterwards, I would suggest you to read something from Taleb, maybe The Black Swan, since economics it's full of BS, and this book will serve as a compass. Finally, I would advise you to take the class: Economics of Money and Banking [6] from Columbia on Coursera.


[2] China has the highest foreign exchange reserve in the world


[4] If you are interested don't get scared by the price tag, buy any older editions which are almost as good as this one and will cost you a fraction.



Original thread
by giardini
bluecalm says:

"What an assertion! It also proved to be very useful for hordes of scientists... what about some examples of confused scientists?"

How about every single economist and financial analyst who failed to predict the financial crashes of the last 50 years? Did you realize how much money was lost over the last 50 years by the financial industry's reliance on models that improperly use the standard Gaussian bell curve? Taleb pointed out why the Gaussian is not usually an appropriate model for financial analysis and suggested a return to more conservative models. Yet today Modern Portfolio Theory and the Black-Scholes models (which use the Gaussian) dominate in financial schools and institutions despite the fact that they absolutely utterly failed, not badly, but catastrophically in every financial crisis when they were most needed.

You state that "Standard deviation tells you how volatile measurements are". But Taleb shows how financial markets are non-Gaussian and have "fat tails" and gives the data and the supporting arguments.

bluecalm says:

"As someone who uses it daily I am eagerly awaiting his argument."

You're late! Taleb began publishing his arguments years ago and continues to publish. You're way behind. Read his papers and read his books in the following order:

Fooled by Randomness

The Black Swan


BTW simply because someone's writing style is different does not mean that he is wrong. To me, complaining about a writing style is a form of ad hominem argument. People are different and Taleb is one-of-a-kind. Initially I didn't see where he was going, but once I realized that he was presenting ideas that were absolutely, utterly novel and had real explanatory power I sat up and paid attention. If you read for the facts and the valid arguments you will see that Taleb delivers the goods.

Original thread

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