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The Chaos Kings are traders or investors who prosper during times of chaos. Mark Spitznagle and Nassim Taleb are among them, focusing on trading around risky events. For instance, Bill Ackman made billions anticipating the COVID crisis. Spitznagle explains his strategy as aiming for explosive returns during chaotic times, like his recall of past successes, such as the 1987 Black Monday crisis.
Spitznagle's hedge fund approach involves trading derivative contracts cheaply, counting on explosive returns during downturns. He relaunched his fund in 2007 after a 2004 shutdown, aiming to profit from swift market drawdowns. The strategy of buying and selling options at significant margins contributes to his explosive upside goal.
Taleb warns that black swan events, unforeseen and extreme, pose significant risks. These events are key in Spitznagle's strategy, such as banking on a 20% S&P decline. Protecting oneself from black swans involves risk management strategies, like the one employed by Spitznagle and Taleb, aiming to safeguard against major market downturns.
Taleb advocates accountability in the financial system, emphasizing the need for punishment when risks materialize. He criticizes bailouts and favors consequences for wrongdoers. Taleb supports the precautionary principle, urging caution in potential systemic risk areas like GMOs.
Spitznagle anticipates a financial system collapse, cautioning against excessive reliance on liquidity and predicting a looming catastrophe. His strategy with Taleb aims to protect investors during calamitous events, despite regulatory unpredictability.
Interested readers can find 'The Chaos Kings' on Amazon or visit scottpattersonbooks.com for more information. Scott Patterson shares insights on financial system risks and strategies in the book, offering valuable perspectives on trading during chaotic times.
On today’s episode, Clay chats with Scott Patterson about his new book - The Chaos Kings.
The Chaos Kings tells the story of the hedge fund that achieved average annual returns of over 105% from 2008 through 2019, and how Bill Ackman had a $27 million dollar bet that turned into over $2.6 billion.
IN THIS EPISODE YOU’LL LEARN:
00:00 - Intro.
02:35 - Who the Chaos Kings are.
05:38 - The story of Nassim Taleb and Mark Spitznagel setting up a hedge fund that delivered average returns of 105% annually.
06:12 - How these hedge funds profit tremendously during times of calamity.
16:14 - What led Nassim Taleb to get interested in the markets.
24:55 - Why we should be mindful of just how uncertain the world and our global economy is today.
complexity theory - What complexity theory is.
28:51 - How investors can protect themselves from a black swan event.
45:02 - How Taleb and Spitznagel viewed the world differently than conventional wisdom.
53:12 -How predictable Black Swan events are.
57:41 - Looming Black Swans that Taleb sees in today’s world.
60:49 - What the precautionary principle is.
63:23 - Taleb and Spitznagels take on the systemic risks in the financial system today.
Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences.
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