The Connectivity Effect and the Evolution of Trades

Nassim Nicholas Taleb (@nntaleb), the author of “The Black Swan” and “Antifragile," joins episode 83 of The Julia La Roche show alongside veteran Wall Street Journal reporter Scott Patterson (@pattersonscott), author of “Chaos Kings: How Wall Street Traders Make Billions In the New Age of Crisis.” 

“Chaos Kings,” which features Taleb, recounts the story of Universa Investments, a Miami-based investment firm specializing in risk mitigation, deploying a tail-risk hedging strategy to limit losses from an outsized market event, like a Black Swan. Taleb is the Distinguished Scientific Advisor at Universa.

Led by Mark Spitznagel, Universa is among the best-performing investment managers of the last 15 years, reaping massive gains from market crashes. During the depths of the COVID-19 pandemic in early 2020, Universa delivered a stunning 4,000% return during the first quarter when markets sharply sold off. The firm has posted a 15-year average annual return on capital north of 100%.

0:00 Show open

1:00 Chaos Kings story 

6:40 A problem with infrequent but large losses  

9:45 Precautionary Principle 

12:29 Tail risk hedging 

15:30 Flaws of modern finance 

17:17 Mark Spitznagel learning to “love to lose” 

19:00 Fragilities, hidden risks, big picture macro environment 

23:43 Addressing misconceptions around Black Swans 

25:30 Optionality 

30:16 Experience and execution of the strategy 

31:49 Black Swans v. Dragon Kings 

34:30 Predicting an event is one thing; benefitting is another thing

36:00 Sornette’s Dragon Kings 

38:50 Universa’s 4,000% gain 

41:45 Getting to know Nassim Taleb 

46:01 Rethinking investing 

49:01 New age of crisis 

54:40 Parting thoughts