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Started By
Message
Investors Betting on Market Crash
Posted on 5/24/13 at 10:02 am
Posted on 5/24/13 at 10:02 am
Agree or Disagree with the article?
LINK
quote:
Stocks have had a stellar year so far. In fact, the rally has gotten so heated that some investors are making bets on a big crash.
Universa Investments, which spends hundreds of millions of dollars a year buying crash protection, has attracted a record amount of money into its fund this quarter.
"People are starting to recognize that these market moves are unnatural and distorted," said Universa president and chief investment officer Mark Spitznagel, who declined to say how much is spent on crash protection, citing SEC rules.
Universa's view that a crash is coming is not widely held, making crash protection cheap, he said. Universa buys this protection in the form of options that generate huge returns when the stock market falls by more than 20%. Universa's adviser, economist and former derivative trader Nassim Taleb calls it 'black swan' hedging.
That's apropos considering Taleb coined the phrase 'black swan,' described as an unforeseen event that has an extreme impact, such as the 2008 financial crisis or Japan's 2011 nuclear disaster.
Spitznagel says he's pretty confident that the market will crash, or fall by more than 20%, in the next six months -- a year max.
LINK
3
Posted on 5/24/13 at 10:13 am to Lsut81
That's apropos considering Taleb coined the phrase 'black swan,'
One of the two applies
I'll let let you guess which.
People were calling that bubble popping for YEARS.
quote:
described as an unforeseen event that has an extreme impact, such as the 2008 financial crisis or Japan's 2011 nuclear disaster.
One of the two applies
I'll let let you guess which.
People were calling that bubble popping for YEARS.
Posted on 5/24/13 at 10:30 am to Lsut81
Its interesting that Taleb's "Black Swan" theory is being used as the basis for an investment strategy. Particularly because the fundamental tennant of Taleb's "The Black Swan" book are that Black Swans are by nature unable to be predicted and that forecasting of any sort particularly in finance is a folly, has proven terribly inaccurate and constitutes intellectual fraud. 
Based on Taleb's own principles Mr. Spitznagel's prediction should be dismissed and he should be lampooned.
Based on Taleb's own principles Mr. Spitznagel's prediction should be dismissed and he should be lampooned.This post was edited on 5/24/13 at 10:33 am
Posted on 5/24/13 at 10:36 am to wiltznucs
DIT
TOE
TOE
Posted on 5/24/13 at 10:40 am to Broke
all of my smartstocks.com stocks are down today except for tsla glad it's not real money
glad it's not real money
Posted on 5/24/13 at 10:58 am to Cmlsu5618
In my humble, humble opinion.
Posted on 5/24/13 at 11:02 am to Cmlsu5618
quote:
I feel like 20% is a far stretch. The market is not THAT overvalued. S&P has a P/E of 18-19ish.
S&P P/E
I could see a 10% drop, buy I think the index ends the year upwards of 1675.
I honestly don't know, thats why I started this thread. To see if the savvy ones believe that a 20% correction is possible.
Using my baseless wisdom, I think a correction into the low 14ks would be more realistic.
Posted on 5/24/13 at 11:31 am to Lsut81
quote:
To see if the savvy ones believe that a 20% correction is possible.
A 20% correction is always possible. Savvy people understand that.
Lucky ones have their bets in place when it happens. But that is pretty much just luck.
Posted on 5/24/13 at 11:36 am to wiltznucs
quote:
Particularly because the fundamental tennant of Taleb's "The Black Swan" book are that Black Swans are by nature unable to be predicted and that forecasting of any sort particularly in finance is a folly
I thought his basic idea was that people generally underestimate the frequency of events in the tail of the probability distribution (black swans) which leads to an underpricing of risk.
So if you purchase enough deep, out of the money put options for example, you end up making money in the long run.
I could be wrong though, I heard him speak once but that was years ago.
This post was edited on 5/24/13 at 11:43 am
Posted on 5/24/13 at 11:37 am to Lsut81
quote:
I honestly don't know, thats why I started this thread. To see if the savvy ones believe that a 20% correction is possible. Using my baseless wisdom, I think a correction into the low 14ks would be more realistic.
A 20% correction is always possible, hell a 40% crash is possible! In fact, I'll even boldly say that BOTH will happen. ........... someday. However, not a single person on GAIA'S GREAT arse knows when it'll happen, or what will cause it. Anybody who says differently is selling snake oil.
Posted on 5/24/13 at 11:38 am to Vols&Shaft83
quote:
Anybody who says differently is selling snake oil.
Do they accept bitcoins as payment
Posted on 5/24/13 at 11:46 am to Lsut81
quote:
Do they accept bitcoins as payment
That would be like trading snake oil for snake oil.
Posted on 5/24/13 at 11:54 am to ZereauxSum
quote:
I thought his basic idea was that people generally underestimate the frequency of events in the tail of the probability distribution (black swans) which leads to an underpricing of risk.
So if you purchase enough deep, out of the money put options for example, you end up making money in the long run.
I could be wrong though, I heard him speak once but that was years ago.
I actually just finished the book this week. He really doesnt offer investment advice as it were but he indicates that he made his money by captilizing on areas which underestimated their own exposure to risk.
In short, the Black Swan is an event that is a surprise, has a huge effect, and retrospectively it is rationalized. Among other ideas he feels humans tend to underestimate their exposure to risk and that Gaussian bell curve statistics are only useful on certain segments of data. He goes so far as to call the bell curve a fraud along with Black-Scholes model.
In the case the OP mentions the person is predicting a market tumble which is certainly not a surprise as its happened many times before. Taleb contends that predicting a tumble is easy, knowing what caused it and exactly when it will happen is the tricky part. The Black Swan is typically the mystery trigger which nobody saw coming that causes a crash..
This post was edited on 5/24/13 at 12:04 pm
Posted on 5/24/13 at 12:51 pm to wiltznucs
You know, I've been meaning to read his book but I keep hearing things like what you said, so I keep putting it off
Posted on 5/24/13 at 5:37 pm to Volvagia
quote:black swan means an event that isn't affected by statistics - it is by definition an outlier & therefore normal risk management methods don't work for it.
One of the two applies
I'll let let you guess which.
Posted on 5/24/13 at 6:12 pm to Tigah in the ATL
Thank you, that is a much more concise answer and captures the book very well...
This post was edited on 5/24/13 at 6:13 pm
Posted on 5/24/13 at 8:14 pm to Tigah in the ATL
Okay, under that description both apply to it.
But the original statement is shitty compared to that....
But the original statement is shitty compared to that....
Posted on 5/25/13 at 9:46 pm to Vols&Shaft83
quote:Harry Dent
However, not a single person on GAIA'S GREAT arse knows when it'll happen, or what will cause it. Anybody who says differently is selling snake oil.
Posted on 5/26/13 at 3:41 am to Cmlsu5618
quote:
I could see a 10% drop
I agree with this.
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