Vision to Reality: The Reut Blog

While the financial crisis continues, Bloomberg reports that the theories of Nassim Taleb, author of one of the books in the Reut Canon, ‘Black Swan: The Impact of Highly Improbable Events’ have helped investors gained 50% or more this year on the stock market as his strategies for navigating big swings in share prices paid off.

The report states that Universa Investments LP, where Taleb is an adviser, has about $1 billion in accounts managed to hedge clients against big moves in financial markets. Returns for the year through Oct. 10 ranged as high as 110%.

In his book, Taleb argues that Black Swans are high-impact unpredictable events. We fall for them because people make selective generalizations based on what he calls ‘Mediocristan,’ which works according to a Bell Curve (height, weight, life expectancy) in which nothing is too far from the average rather than Extremistan, which works according to Power Law distribution (Website popularity or Wealth).

While Taleb doesn’t consider the recent crash to be a black swan as he saw the banking crisis coming, the ‘Black Swan idea’ is important in explaining the cognitive reasons that can lead to strategic surprises.