17-07-2011, 03:02 AM
Hello,
I want to share with the community my experience of picking stocks based on the Black Swan concept. I am sure most of you are already familiar with the title and must have heard of Nassim Nicholas Taleb, the author of the book "The Black Swan - The Impact of the highly improbable". I must say Mr Taleb is one of the sharpest thinkers of our age and his thoughts helped shape my trading mentality.
When hearing of Black Swans most people's thoughts are directed towards the financial crisis which was a Negative Black Swan, but Negative Black Swans are only half the story of the Black Swan. My strategy is about Positive Black Swan stocks.
I will not go for long about the idea of the black swan, but I will elaborate it in the trading context:
Black Swans hit the companies that belong to Extremistan (the land of the extremes: the extremely big and the extremely small)
Negative black swans hit the relatively big companies that belong to Extremistan: their history will be constituted of numerous small gains followed by a massive loss that wipes all their gains accumulated.
Positive black swans hit the relatively small companies that belong to Extremistan: their history will be constituted of numerous small losses followed by a huge profit that will cover all the losses accumulated.
Nassim Taleb mentioned briefly Positive Black Swans concept in his book- "The Black Swan", here are some quotes :
another quote
My strategy isn't about "positive Black Swan businesses" as much as it is about "Positive Black Swan characteristics".
similarly to my portfolio you have little to lose per stock but for some reason one of them might take off, just like happened last year with Insmed (INSM). You can check it here http://stock-swans.blogspot.com/2011_06_17_archive.html .
Despite the brief paragraphs in the book, I developed deep and advanced understanding of Positive Black Swans and how to benefit from them.
To finish this post I find no better than this other quote from "The Black Swan":
I may not be very good at presentation but I do much better at answering questions, so don't hold back.
Very Important Note: There are many pretenders out there that use "The Black Swan" as a marketing medium for whatever they are selling, I am not one of them, I am a true practitioner of Taleb's thoughts.
Best regards
I want to share with the community my experience of picking stocks based on the Black Swan concept. I am sure most of you are already familiar with the title and must have heard of Nassim Nicholas Taleb, the author of the book "The Black Swan - The Impact of the highly improbable". I must say Mr Taleb is one of the sharpest thinkers of our age and his thoughts helped shape my trading mentality.
When hearing of Black Swans most people's thoughts are directed towards the financial crisis which was a Negative Black Swan, but Negative Black Swans are only half the story of the Black Swan. My strategy is about Positive Black Swan stocks.
I will not go for long about the idea of the black swan, but I will elaborate it in the trading context:
Black Swans hit the companies that belong to Extremistan (the land of the extremes: the extremely big and the extremely small)
Negative black swans hit the relatively big companies that belong to Extremistan: their history will be constituted of numerous small gains followed by a massive loss that wipes all their gains accumulated.
Positive black swans hit the relatively small companies that belong to Extremistan: their history will be constituted of numerous small losses followed by a huge profit that will cover all the losses accumulated.
Nassim Taleb mentioned briefly Positive Black Swans concept in his book- "The Black Swan", here are some quotes :
Quote:There are both positive and negative Black Swans.William Goldman was involved in the movies, a positive-Black Swan business. Uncertainty did occasionally pay off there.
another quote
Quote:Aside from the movies, examples of positive-Black Swan businesses are: some segments of publishing, scientific research, and venture capital. In these businesses, you lose small to make big.
My strategy isn't about "positive Black Swan businesses" as much as it is about "Positive Black Swan characteristics".
Quote:You have little to lose per book and, for completely unexpected reasons, any given book might take off. The downside is small and easily controlled.
similarly to my portfolio you have little to lose per stock but for some reason one of them might take off, just like happened last year with Insmed (INSM). You can check it here http://stock-swans.blogspot.com/2011_06_17_archive.html .
Despite the brief paragraphs in the book, I developed deep and advanced understanding of Positive Black Swans and how to benefit from them.
To finish this post I find no better than this other quote from "The Black Swan":
Quote:Middlebrow thinkers sometimes make the analogy of such strategy with that of collecting "lottery tickets." It is plain wrong.
First, lottery tickets do not have a scalable payoff; there is a known upper limit to what they can deliver. The ludic fallacy applies here—the scalability of real-life payoffs compared to lottery ones makes the payoff unlimited or of unknown limit. Secondly, the lottery
tickets have known rules and laboratory-style well-presented possibilities; here we do not know the rules and can benefit from this additional uncertainty, since it cannot hurt you and can only benefit you.
I may not be very good at presentation but I do much better at answering questions, so don't hold back.
Very Important Note: There are many pretenders out there that use "The Black Swan" as a marketing medium for whatever they are selling, I am not one of them, I am a true practitioner of Taleb's thoughts.
Best regards
