Waiting is the hardest part

13Jul07

“Just when I thought I was out they pull me back in.” – Michael Corleone, Godfather: Part III

In that same light, it is also apparently difficult for noted author Nassim Nicholas Taleb to stay away from the money management business. The author of “Fooled by Randomness” and the currently best-selling “The Black Swan”is back in the money management business (albeit in a limited way).

Scott Patterson at WSJ.com has a profile of “Mr. Volatility”, his “cult-like following” and his approach to the markets:

Mr. Taleb believes most investors underestimate the likelihood of seeing a black swan — which he defines as extreme, highly disruptive events that send shockwaves through financial markets — and that there are huge profits to be made in such conditions.

Patterson notes how re-entry into the hedge fund business will provide a real-time test of Taleb’s theories. The timing seems uniquely fortuitous:

The launch of Universa may have auspicious timing that will test Mr. Taleb’s theories. Jitters about whether the widening subprime mortgage meltdown will rattle the financial system are spreading.

Patterson notes there is, not surprisingly, a built-in demand for hedge funds that have the prospect of paying off for investors during times of market stress. Most hedge fund strategies are dependent upon relative valuation convergence, as opposed to divergence. The challenge is waiting for a significant market move that will make this investment strategy pay-off in a big way.

For those who have not been exposed to Taleb’s writings this article provides a good starting point. You can also check out Taleb’s home page which has additional writings. For those interested you can hear a short interview with Taleb by Tom Keene at Bloomberg Radio. (iTunes link)

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