95% in TIPS (US Inflation-Protected Treasury Bonds)

5% in 12 month call options over the stock market

He argues that this produces a similar result to the increase in the stock market in good years, and limits your total downside to your portfolio to 5% (instead of the recent 40%+) in bad stock market years … AND protects 95% of your portfolio against all inflation risk, to boot!

Every month you park little amount and dont disturb it till you retire and you would feel the good it does for you

Regards
Mellisa
http://www.taxrelief.myirstaxrelief.com

I guess I should have invested in a generator.

The thorough evisceration of normal-curve abuse in statistics is very powerful. Basically, it doesn’t matter whether the tails are “fat” or “thin”–what matters is that somewhere way out each tail are outcomes that no one wants to imagine.

Ultimately, neither his investment advice, nor Trent’s valiant efforts to put the main idea into ordinary recommendations really does his argument full justice. Translating Taleb into Rumsfeld/Cheney parlance, a black swan is an “unknown unknown” which by definition cannot be planned for, only ridden out like a perfect storm.

From and individual investors standpoint – one problem with the strategy is that it is much easier to execute when it is your full time job and you have hundreds of millions to allocate, much more difficult for the non-pro with hundreds of thousands.

@ marsha. It’s the same with the snow in the UK. Better to write off two days of snow chaos every 5 years then to invest in mostly unused infrastructure. However, if the unlikely event involves loss of life then you may need to adjust your strategy, e.g. don’t build every house to cope with the Cat 5 hurricane, but build one shelter that everyone could go to such a case.

However, this is NOT what black swan is about. Black Swan basically says that all finance people assume that events have a normal distribution and plan accordingly. But events are not like this as black swan events can happen much more often that we think. Thus finance people have a deeply flawed model of the world/economy and this leads to them making equally flawed plans and decisions. I think it’s a good read.

Example. Some casino people got him in to consult to make sure that no gamblers could cheat and rip-off the casino. But the two important problems came entirely outside the casino. 1) the owners daughter was kidnapped and the owner illegally dipped into funds to get the ransom money. 2) the person who was supposed to send forms to the IRS didn’t and they nearly lost their license. You can see the 1) would be covered by a big emergency fund.

Hence you may not know WHAT will happen, but you can know that SOMETHING will happen.

Coming from the Gulf Coast, I see the analogy as building every structure to withstand a category 5 hurricane. Cat 5s almost never happen, and almost never hit land. And it would be outrageously expensive to build everything that strong.

I have a feeling I’m missing your point, though. Maybe you were just using the “black swan” thing as a jumping off point?

However, re opportunity fund comment about offering $3000 only for a neighbor’s car that has $5000 or best offer, I find that difficult to swallow. To me that seems like taking advantage of someone else’s misfortune in a big way and doesn’t seem very ‘neighborly’ at all.

I don’t really understand Taleb’s investment theory. If you lose all your money on the risky stock, are you expected to rebalance and try 15% in another risky stock? Seems like if you go on an unlucky streak, you’ll go through a large chunk of your money in no time. Of course, thanks to the half-life phenomenom, you’ll never go flat broke.