Tim Ferriss

September 7, 2023

Nassim Nicholas Taleb & Scott Patterson — How Traders Make Billions in The New Age of Crisis, Defending Against Silent Risks, Personal Independence, Skepticism Where It (Really) Counts, The Bishop and The Economist, and Much More (#691)

“If you must panic, panic early.”

— Nassim Nicholas Taleb

“Uncertainty is actually a reason for precaution rather than just throwing caution to the wind and just saying, ‘Well, we don’t know, so what the hell? Let’s just keep going.’”

— Scott Patterson

Nassim Nicholas Taleb (@nntaleb) spent 21 years as a risk-taker (quantitative trader) before becoming a researcher in philosophical, mathematical, and (mostly) practical problems with probability.

Taleb is the author of a multivolume essay, the Incerto (The Black Swan, Fooled by Randomness, Antifragile, The Bed of Procrustes, and Skin in the Game), covering broad facets of uncertainty. His work has been published into 49 languages.

In addition to his trader life, Taleb has also written, as a backup of the Incerto, more than 70 technical and scholarly papers in mathematical statistics, genetics, quantitative finance, statistical physics, medicine, philosophy, ethics, economics, and international affairs around the notion of risk and probability (grouped in the Technical Incerto).

Taleb is currently Distinguished Professor of Risk Engineering at NYU’s Tandon School of Engineering (retired). His current focus is on the properties of systems that can handle disorder (“antifragile”).

Scott Patterson (@pattersonscott) is an investigative reporter for The Wall Street Journal, currently based in Washington DC, working on climate and energy policy. His new book is Chaos Kings: How Wall Street Traders Make Billions in the New Age of Crisis, a profile of the rise of “black-swan traders,” such as Nassim Taleb and Mark Spitznagel, as well as a survey of the many perils the world faces today—and how we might fix them.

Scott has covered everything from Berkshire Hathaway to stock exchanges to high-speed traders to the financial regulators. His first book, The Quants, describes the rise of mathematical finance and delves into its role in the 2008 financial blowup. Dark Pools, his second book, tells how computer traders took control of the US stock market, starting from the birth of computer trading in the 1980s to the explosion of high-frequency trading in the late 2000s.

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#691: Nassim N. Taleb & Scott Patterson — How Traders Make Billions in The New Age of Crisis, Defending Against Silent Risks, Personal Independence, Skepticism Where It (Really) Counts, The Bishop and The Economist, and Much More

Listen to the episode on Apple Podcasts, Spotify, Overcast, Podcast Addict, Pocket Casts, Castbox, Google Podcasts, Amazon Music, or on your favorite podcast platform. You can watch the interview on YouTube here. The transcript of this episode can be found here. Transcripts of all episodes can be found here.

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Want to hear an interview with someone else who history will remember as much more than a successful hedge fund manager? Listen to my most recent conversation with Ed Thorp in which we discussed music as stress reduction, avoiding unnecessary risks, how to become more numeracy literate, the value of long-term thinking, the price of short-term thinking, making the best financial decisions with unknown variables, how to have fun learning about probability and statistics, and much more.

#604: Master Investor Ed Thorp on How to Think for Yourself, Mental Models for the Second Half of Life, How to Be Inner-Directed, How Basic Numeracy Is a Superpower, and The Dangers of Investing Fads

What was your favorite quote or lesson from this episode? Please let me know in the comments.

SCROLL BELOW FOR LINKS AND SHOW NOTES…

SELECTED LINKS FROM THE EPISODE

Connect with Nassim Nicholas Taleb:

Website | Twitter

Connect with Scott Patterson:

Website | Twitter

SHOW NOTES

[09:44] How Scott and Nassim first connected.
[12:02] Why Nassim would rather be remembered as a scholar than a trader.
[14:01] You can’t forge a new friendship without breaking a few eggs.
[16:22] Silent risk, tail events, and one-trick ponies.
[25:56] What prompted Scott to write Chaos Kings?
[33:41] Pseudo-efficiency, pseudo-optimization, and pseudo-sorries.
[36:49] The joy of writing a preemptive resignation letter.
[37:39] Developing resilience against criticism.
[40:33] Recurring patterns in successful investors.
[44:15] Nassim: contrarian, or simply independent?
[46:44] Jiving with skeptical turkeys.
[51:53] Living in the polycrisis.
[53:54] The precautionary principle.
[1:00:07] Fat tails, thin tails, and the COVID vaccine.
[1:11:03] GMO risks and Monsanto intimidation tactics.
[1:14:45] Implementing the precautionary principle at a large scale.
[1:16:49] Uncertainty and the climate crisis.
[1:19:45] Convexity in the face of financial crisis.
[1:27:12] Are investors overpowered in an interconnected world?
[1:31:36] Utilizing the precaution principle in the real world (for better and worse).
[1:36:53] The flow-on effect of having skin in the game.
[1:39:37] The ponzification of startups and an overdue reckoning.
[1:42:51] What convexity at the center of all things conveys.
[1:49:27] Where to find Scott and Nassim.
[1:50:44] What Nassim is working on now.
[1:53:37] New insights from ancient words.
[1:57:26] Parting thoughts.

MORE QUOTES FROM THE INTERVIEW

“On my grave, I don’t want to be known as a trader, but as a scholar.”

— Nassim Nicholas Taleb

“If you must panic, panic early.”

— Nassim Nicholas Taleb

“Uncertainty is actually a reason for precaution rather than just throwing caution to the wind and just saying, ‘Well, we don’t know, so what the hell? Let’s just keep going.’”

— Scott Patterson

“It’s what I call pseudo-optimization: If you drive a Ferrari 500 kilometers per hour, you’re not going to get there faster than if you ride a bicycle, because obviously you’re never going to get there.”

— Nassim Nicholas Taleb

“I came into Wall Street and started reading about how there’s this belief that people are irrational and the markets are rational and they are predictable because of this. And I thought that is just crazy. To me, I look at financial markets and I see black swans, I see fear and greed. That to me is what drives markets, not rational behavior, rational expectations.”

— Scott Patterson

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Michael Karpman

2 years ago

I’ve been reading Amory Lovins since I first came across him in the 1980 version of the Whole Earth Catalogue. Here is a quote about him from that tome:

“Amory Lovins is one of the good guys if you happen to be anti-nuclear and pro-environment. But to many economists and other conventional wisdom freaks, he is a pie-in-the-sky type given to utopian, emotional oversimplifications. | find his simplifications to be the result of crap-removal, and his arguments to be essentially reasonable if humanity is to last much longer. His discussion of nuclear matters is particularly enlightening. I’ve noticed that his noisiest foes are the emotionalists these days; Mr. Lovins is the one with the documentation.”

I would be excited to hear you interview him on your podcast

Keep up the good work