“Predicting an event is one thing,
and benefiting from it is another thing.
See, I’m a very bad predictor
—I’m wrong most of the time—
but it doesn’t cost me much to be wrong.
That’s what matters, it’s the payoff,
not the frequency of being correct.”
— Nassim Taleb
Tales or tails…I find myself spending a lot of time on both these days. My formative investment years were 1999–2009. That decade taught me incredibly important lessons in tales and tails, and most of the framework that we utilize at Chiron was developed during this period.
This also happened to coincide with the rise of my favorite financial author, Nassim Taleb. In 2001, he wrote what was the first of a long series of essays and books, entitled “Fooled by Randomness,” followed in 2007 by the bestselling book “Black Swan.” (Although to be fair, it only became a best seller AFTER the crash in 2008).
Taleb taught me to obsess about the tails and that Gaussian bell curves kill Wall Street careers. This has stuck with me and today most of my investing obsession is around the tails, those rare events that shatter the illusion of stability and stationarity.
Our investment process is built on the premise that the tails—both on the left and on the right—are identifiable. Much like Jeremy Grantham, I believe the only things that matter in investing are the creation of behavior bubbles and the bursting of these bubbles, as both create mirror-image tail opportunities.
Increasingly, our work is signaling a tale meeting a tail and, unfortunately, it’s the left one.
