‘If you do not have a tail punch, I recommend that is not on the market, we are facing a huge amount of uncertainty.’
This is”the Black Swan: the impact of the highly improbable”by Nassim Nicolas Taleb offers his look at the risks of swing in the market, the increasing lack of transparency about the future era of a deadly epidemic, has created a public health and economic crisis.
Speaking during an interview on CNBC Friday on the popular author, the concept of sharing, the investors should punch against the so-called”tail risk”, which refers to extreme events, there is a very low probability of happening in a distribution of the results. Taleb has spent his career documenting the so-called”tail risk”events, which have a tiny probability of occurrence, but still happens more often than people guess, and therefore often underestimated by the wider investment community.
Taleb said the current market environment, perhaps, has amplified the uncertainty, even if the stock market has been rising, although there are signs the spread of the COVID-19 epidemic is to re-strengthen in place and threatened to derail the know predicted a”V-shaped”or quick, economic recovery.
“We are printing money like there’s no tomorrow”Taleb said, citing the Federal Reserve’s efforts to ease the financial pain of the epidemic has provided trillions of dollars to stimulate the market. The Fed also cut interest rates to a superlow range of 0%and 0. 25%back in March, and probably won’t have a lot of space to further ease the economic pain the virus outbreak and other problems that may arise in this crisis.
“And COVID seems to be there even if the epidemic is…dead, you will still be someone cautious, which will affect the industry,”he said.
Hedge funds, designed to benefit from tail risks with a significant run up in the age of the COVID-19.
For example, the Chicago Board Options Exchange Eurekahedge Tail Risk volatility of the hedge Fund index has returned 48. 19%so far this year. By comparison, the Dow Jones Industrial Average
Is off nearly 12% so far in 2020, the S&P500 index
Subcontracting and partnership exchange,
Is decreased by 6. 2%and the NASDAQ Composite
In order to nearly 10% so far this year.
At the same time, the Universa management of Mark Spitznagel, see an eye-popping 4,000% return on his tail-risk funds during the height of the epidemic. Taleb has also been a consultant in the Fund.
To be sure, to protect the portfolio from tail risk, rather than gambling that they might be the key. Investment funds, trying to simply bet large sums of money in the market turmoil is often carried out, the Wall Street Journal writes. This is because these bets a sharp decline has been unable to benefit from the subsequent rally in the market.