Yes, this was why I said that I misjudged him. I thought that his view was that the outsider line was always correct. In fact, what he is saying is that, because "star" traders work on short-time (personal) horizons, then they are far more likely to put $100m of someone else's money on a 1-to-100 shot that is really 1-to-150 than they are on a 100-to-1 shot that is really 66-to-1. I mean, wouldn't you, if the offer was 20% of any profit?
This is a reasonable - indeed, almost undeniable — analysis.
On Geoff's point. Taleb's point was that any star trader must, by definition, have been lucky, and that fact that he is a star trader (i.e., off the scale in terms of standard deviation) would tend to indicate that he is a risky trader. Coming back to poker, I note that no chip leader at the end of day one has ever gone on to win the world series Big One. This is because to become chip leader by the end of day one you have had to take some serious all-or-nothing gambles. Eventually these catch up with you. However, of the final table this year, I think that nine of the first 10 were in the top half.
One has to argue that a risky trader is by definition not a good one. Now, I guess one could argue against that, on the grounds that if the risky trader has a long-term average above that of "steady eddie", and if he has an unlimited bankroll, then your long-term return will be better with Jimmy "lump-it-all-in" Jayglo.
I was going to say that I would pick the trader with the steady record of outperforming by a few points. The problem is that, these days, that is probably the self-same guy who is taking on too much risk for very little extra in absolute return!
Personally, I pick my own investments and the only fund I am in is my 15-year endowment with Sun Life, and I think that all of that is in Treasuries.
Taleb
This is a reasonable - indeed, almost undeniable — analysis.
On Geoff's point. Taleb's point was that any star trader must, by definition, have been lucky, and that fact that he is a star trader (i.e., off the scale in terms of standard deviation) would tend to indicate that he is a risky trader. Coming back to poker, I note that no chip leader at the end of day one has ever gone on to win the world series Big One. This is because to become chip leader by the end of day one you have had to take some serious all-or-nothing gambles. Eventually these catch up with you. However, of the final table this year, I think that nine of the first 10 were in the top half.
One has to argue that a risky trader is by definition not a good one. Now, I guess one could argue against that, on the grounds that if the risky trader has a long-term average above that of "steady eddie", and if he has an unlimited bankroll, then your long-term return will be better with Jimmy "lump-it-all-in" Jayglo.
I was going to say that I would pick the trader with the steady record of outperforming by a few points. The problem is that, these days, that is probably the self-same guy who is taking on too much risk for very little extra in absolute return!
Personally, I pick my own investments and the only fund I am in is my 15-year endowment with Sun Life, and I think that all of that is in Treasuries.