Top Traders Unplugged

SI301: The AI Hype within Investing...a Step Too Far? ft. Rob Carver

Jun 22, 2024
Guest
Rob Carver
Expert Rob Carver discusses buying put options for tail risk, trend following, carry strategies, and the impact of the U.S. election on the economy. He shares skepticism about AI hype, challenges of fee setting, and investor preferences for high-fee managers. The podcast explores the risks and liabilities of AI in asset management, the complexities of performance fees, and the importance of transparency and caution in utilizing AI tools.
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ANECDOTE

Options Trading Risks Anecdote

  • Rob Carver shares his experience watching an options trader lose badly by buying short-dated put options too expensively.
  • He explains this firsthand understanding of the dangers in buying optionality as a long-term losing strategy due to volatility mispricing.
INSIGHT

Tail Risk Insurance Paradox

  • Adding a negatively returning asset with negative correlation improves portfolio Sharpe ratio.
  • This allows higher leverage, increasing geometric returns despite the negative expected return of the insurance.
ADVICE

When to Buy Tail Protection

  • Leveraged investors should buy modest tail risk protection, e.g., paying 2% annually to defend against large drawdowns.
  • Non-leveraged long-term investors likely shouldn't buy tail protection due to persistent cost and little benefit.
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