[Cross-posted from iMedia Kentucky] In today's market, out-sized market moves can be devastating to the <throat clearing> average investor </throat clearing>. IdeaFestival speaker Nassim Nicholas Taleb was recently featured in a Bloomberg article, explaining how his ideas about the improbable have helped investors avoid - and profit from - the extreme market swings of late.
Taleb's book argues that history is littered with high-impact rare events known in quantitative finance as 'fat tails.' As the founder of New York-based Empirica LLC, a hedge- fund firm he ran for six years before closing it in 2004, Taleb built a strategy based on options trading to bullet-proof investors from market blowups while profiting from big rallies.
Mark Spitznagel, Taleb's former trading partner, opened Universa [where Taleb is an adviser] last year using some of the same strategies they'd run since 1999....
'The Black Swan Protection Protocol is designed to break even 90 to 95 percent of the time,' Spitznagel said. 'We happen to be in that other 5 to 10 percent environment.'
Interested readers may find Taleb's book, "The Black Swan," in the right sidebar of the blog.
Wikipedia: quantitiative finance