Taleb's strategy is reasonably obvious, which he admits. He buys options that are way out of the money and hopes for volatility. His theory, which someone needs to run the data to check, is that options far out of the money are significantly underpriced. The players who price options based on a normal (Gaussian) distribution based on the Black-Scholes model of market behavior will, Taleb claims, systematically underprice options far out on the curve. His strategy exploits this. Whether that's a correct analysis is tough to check, because you have to look at decades of data to see enough outlier events, i.e. big crashes. As Talib admits, his funds bleed in boring years, then make money during crashes. There's another problem. If you buy options that are way out of the money at a low price, can your counterparty pay up if the unlikely event happens? The AIG fiasco, the CDO market collapse, and further back,"portfolio insurance", indicates that the answer is sometimes "no".

Enjoyed reading your piece on Taleb. While I'm a big fan of his books (which are more philosophy books than anything) and generally subscribe to his views, it's always good to hear the other side. The question left unanswered by your piece, however, is just how badly did he do in the down years? If he went up 60 percent in 2000 and 100 percent just last year then he could theoretically have decades of small declines and still be well ahead of the historical average. He has always described his strategy as being willing to lose pennies at a time. I would guess since he shuttered the first hedge fund that the losses were pretty bad (maybe dimes and quarters), but still, it would have helped to know. Is that data not public? Is there not an investor available to leak a few reports?

The subject of Taleb is simple: real life can't be modelled. Suckers think it can. Don't be a sucker. In other news, registering for this site is like trying to crack a Defense Dept computer. It's only a blog. Get over yourself.

It sounds like envy to me.... Taleb was not outstanding during the "normal" periods of market activity, nor was I. My returns prior to 1987, 2000 and 2008 were somewhat average. Not a shining star and many times ridiculed and scorned by many of my peers. I even had a few of my clients whom I was advising drop me in and guess what, they went with Madoff. Imagine that...... after all the money I made for them during the dot-com bust, they called me an idiot and took their money to a genius. I am happy for them. The message that NNT sends is..... "Go ahead and cross the quiet intersection, just don't do it with a blind fold on..." Pretty simple stuff, if you ask me, quite similar to the advice that my grandmother would give... Best regards, Econolicious

I have read the article and the Black Swan book and I really do not understand Mr Gimein's argument. How you can refer to someone who not only survived but flourished during the three biggest market crashes of our generation as "wrong" is quite simply beyond me. What does it matter if he had indifferent performance during the "in-between" years when the times he got it right he got it so massively right that he could retire instantly?! Ask the average investor whether they would like to make "$35-40 million" and then have ten or fifteen years "without much success" investment wise I think they would take it. The point that the author of this article seems to miss and is a central tenet of the Black Swan philosophy is that failure is a necessary component to benefiting from these unusual, "asymmetric outcomes" that NNT has succeeded in benefiting from not once, not twice but 3 times (!) in 20 years. Do you think he might be on to something?! And while the investment advice is limited in the Black Swan (it doesn't claim to be an investment book anyway) it does lay out the central idea of keeping around 80% of your assets in safe/conservative investments, while spreading the other 20% across the riskiest investments you can find, namely private equity that can provide a huge return on a relatively small initial investment.

The main point of the book however is to simply raise the reader's conscientiousness in all walks of life, from how you gauge investment risk, to what you choose to do for a living, to how you think about terrorist attacks or work projects. It teaches you not to put your trust in the hands of the so-called "experts" with their fancy models that got us into this mess in the first place.