#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

Transcript from https://podmenti.com/t/87a58b16900f474f

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So
Hello, boys and girls, ladies and germs. This is Tim Ferris. Welcome to another episode of the Tim Ferris Show, where it is my job to deconstruct world class performers to tease out the lessons, mental models, and so on that you can apply to your own lives. This podcast episode is a rare treat.
A rare appearance.
by at least one of two guests, and in combination, I think the conversation provides a lot of insight related to uncertainty, related to markets.
related to
How to think about risk.
How to think about tail risk, how to think about silent risk, and
Also, how to take advantage of some of these things in how you plan your life, your finances, and so on. There's a lot to it.
a lot of concepts that you can apply in many domains in life and
Let's move on to the bios, shall we? The first guest is Nasim Niklas Taleb.
Who spent twenty one years as a risk taker, that is quantitative trader, before becoming a researcher in philosophical, mathematical, and in his words, mostly practical problems with probability. Taleb is the author of a multi volume essay, The Incerto.
And within that you find the Black Swan, Fooled by Randomness, Anti-Fragile, the Bed of Crusties, and Skin in the Game. Thanks to Matt Mollenweg for first introducing me to the Black Swan.
These all cover 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 seventy 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. These are grouped in the technical inserto. Inserto is spelled I-N-C-E-R-T-O.
Taleb is currently Distinguished Professor of Risk Engineering at NYU's Tandon School of Engineering.
Believe he's retired. His current focus is on the properties of systems that can handle disorder, in other words.
the properties of systems that are in his
Phrasing anti-fragile. You can find him on Twitter at N N Taleb. And that's N-N-T-A-L-E B. Also fooledby randomness.com. The second guest is Scott Patterson. Scott Patterson 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, subtitled 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 a lot. He's covered everything from Berkshire Hathaway to stock exchanges to high speed traders to financial regulators. His first book, The Quants, describes the rise of mathematical finance and delves into its role in the two thousand eight 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 nineteen eighties.
to the explosion of high frequency trading in the late two thousands.
And
You can find him on Twitter.
at Patterson Scott and on his website Scott Patterson Books dot com and
Lest you think this conversation is only about finance, I want to emphasize that very refined thinking in the world of markets and investing.
Really reflects
Clarity of analysis.
and concepts that then lend themselves to a very clear
scoreboard and for that reason it is a fascinating arena within which you can refine your thinking toolkit for many, many, many other things. And we talk about many of these other areas where these things can be cross-applied.
And now without further ado, please enjoy a very wide ranging conversation.
With
Nasim Nicholas Taleb.
And Scott Patterson.

Well I'm thrilled to have both of you here, Scott.
Thanks for making the journey. I can't believe we have the shared
History of Hogie Haven, we might provide that context to people later.
Landmark of a spot in Princeton, New Jersey. Nassim, nice to see you.
Nice finally to be on that side of the microphone. Yeah, definitely, man. And uh I thought we would start with just providing a bit of
Context for listeners as to how the two of you connected. So Scott, how did the two of you
End up meeting.
So this was the m mid two thousands. I was
Reporter at the Wall Street Journal, I still am a reporter at the Wall Street Journal.
At the time
I was covering hedge funds.
And among the hedge fund community
There is this book that a lot of hedge fund managers like to talk about.
You know, the secret book that they were passed around
That they said was really great. It was called Fooled by Randomness.
So I read that book. I thought it was
Amazing.
But
A rumor among these hedge funds managers
Was that the hedge fund that the author of that book Nasim
Club.
Had run a hedge fund.
But it had shut down.
But nobody really knew the truth of whether it shut down or not. So
As a reporter, that intrigued me.
I think it was actually Neil Chris.
A very well known quant hedge fund manager.
Who put us in touch.
I talked to Nassim, I got him on the phone and he said, Yeah, we shut down a couple of years ago.
But there's a new hedge fund that's starting up.
By my
former colleague Mark Spitznagel, maybe you want to write about that.
So I had a story that came out and
The summer of two thousand seven that
Broke the news that Empire had shut down.
At least for the broader public.
Also broke the news that a new hedge fund was swatching called Universa.
Similar strategy.
And also that the
author Fool by Ramness had a new book coming out. The Black called The Black Swan. Which explained you know the transition from
The author was trying to transit. I kept begging him, I thought, no, I don't want to be known as a hedge fund manager. I don't want to be known as a financier of done.
Uh, reframe it so I don't want to talk to you except if you talk about my ideas.
Said, okay, we're gonna talk about your ideas. This is why I mean I was I said, Okay, on my uh grave
I don't want to be known as a traitor, but as a scholar. And I remember he was so he's bringing back a portion of life, but it was at the right time.
Because he contacted
Us.
Right before the explosion.
Of two thousand seven.
And there's a weird connection right there that I'll mention later.
To you, right?
There is a very weird connection to me. And uh let me ask you, Nasim, what
Promptu
To
make the transition. Maybe it was a long time in coming.
But to decide.
Ultimately to step out of
Trading or being active as sort of a player in the field.
And I still in my uh late thirties, early forties, I had time
to really do something else.
And I realized the following, that when I had a position I could be involved in trading, but I didn't want to be the one
Flying the plane.
As a passenger or as a co pilot, maybe.
At a time I said okay, Mark is much more
Capable
of running this because he loves doing it. Okay. And I like the concepts and the ideas but didn't like
To follow positions. And because it was the minute I would be
Involved in the trade.
It would inhabit me.
So I felt that it was there's something in my
brain that was slowed down by the fact that I had to worry about something else out of a sense of responsibility. So Mark didn't have that.
So Mark had He could compartmentalize. He's not compartment. He did nothing else. He and he was an interesting I mean he did other things, of course, on the side of the instruction. So he was a benefit. So I I wanted to transit out. So I said, Okay, it'll take some time off to finish the Black Swan, which I couldn't finish when I was training.
Wish actually I started before food by randomness, incidentally.
I started Black Swan.
And then I said, Okay, I'm gonna talk about randomness. So I got diverted the fool by randomness.
And then I finished the Black Swan. It was almost a twenty year thing. And I realized that I'd like to be a scholar.
Who eats well, who trays once in a while with a sense of it was like a military person who
Has an honorary discharge.
To do other things.
And of course leave the battleship to those who
Live for the battle. Okay. So that was w what happened. And of course the rest is history, as as as you know. But let me mention one thing that probably your listeners and viewers don't know, that of all the people
Live on his podcast.
I bet you I'm the first one you've met.
It's quite possible. Okay. So

You before I met him.
And probably two thousand one, two thousand two.
Around that. Around that. And and and the first time we met we we corresponded and said, Oh, this guy has very interesting ideas about hacking things.
And then we went
To a restaurant, I think on Madison Avenue.
And who ate every single egg they had in the store. No
I was a good deal larger at the time and I was yeah growing. So we eat all the eggs. How could people to human beings eat so many eggs? So that was
My first
Physical encounter. We were corresponding before and became friends. And there's a interesting scene that we had that I have in my mind when Lehman Brothers went bust.

You know, we connected and then you followed our trade. And he wrote about it actually
About the quality of the trade and uh the promise of the trade that we're
Betting on tail events.
Before the Levan uh crisis.
And on that day that when the day demon went bust.
I was on a plane in Communicado.

I land
And the first thing I got is an SMS from him because I was meeting you for dinner.
And the second thing I got is news that Lehman went bust.
So from uh the news from Mark Levin went bust. It was
The two messages. And that night I think they ran out of pink champagne.
In the house.

We were with Ses Roberts, the late Ses Roberts, a very interesting person who also was studying hacks.
Mm-hmm. Fascinating guy.
Yeah, really genuine, lovely human being, and we did consume vast quantities. And then last time in the time before Romania, we met it was at his funeral.
When he came in and paid for the bill?
Surreptitiously and I
Wanna retaliate tonight.
So you'll have the comeback opportunity with the bill this evening.
And uh you're right. I mean there are very few, maybe no other guests who've been on the podcast who pre-date
us meeting in two thousand one, which is wild. And I was probably
thirty to forty pounds heavier in terms of muscle mass. I was all that hoagie haven't I was all that hoagie haven't I was a lot bigger at that time.
I have many questions.
about Black Swan and also about the trading career, but actually a letter, which I'll come back to. I think you'll
get the reference. But first I wanna ask just for a backdrop for people who may have no familiarity with quants with
betting on tail events.
And you have this book.
Which covers a lot of these topics in depth. You have multiple books, but in the case of Betting on Tale Events.
What is a Tel event?
Broadly speaking, and then what are the different ways one can bet?
on tail events.
And you guys can, of course, pass the mic back and forth, but what are the different styles or approaches to betting on televisions?
The thing I would say before the launch is that the point is not to bet on television.
The whole idea of the black swan, everything. I've
I've been telling everyone, every person I meet to bet on disruption and unforeseen to not be harmed by silent risk.
That's the idea. The first thing is don't be harmed by it.

But of course, you know, given that when you study television say these people are ignoring these risks and therefore they're
Risking the system that
People generate and don't see.
Hence you can trade on it.
Yeah, I mean there's all sorts of different approaches.
And I think it's when you talk about betting
On a tail event.
I would say that
What Universa does and Empirica before that is
I wouldn't call that a bet.
I would call that a risk management strategy.
And that in a way d is what differentiates them from
Other hedge funds and traders who
Who do what I would call betting, you know, or
Taking positions based on a belief that something's gonna happen.
What
Universa does
is they are constantly
Taking on positions that will pay off
Massively
In a tail event.
So their clients are constantly protected.
They don't need to make predictions. They never make predictions. It's something that
Mart Spit Snagel.
constantly says is that he is
Shit.
Forecasting.
He's been forecasting a gigantic bear market for decades.
He's been right a couple of times.
But he you know, he will admit, you know, I can't
The timing of it, it's gonna happen one of these days.
And that's
What they provide for their clients is that constant protection.
And they do it by buying
Far out of the money put options. It's it's pretty simple.
Not easy to implement, I think.
Which is why you you don't see a lot of hedge funds doing this.
They do actually they do it.
And then they go bust. Or they, you know, what happened in a scene, it's very stressful.
Because you can go years
Without making money in that strategy.
Because it's waiting for an extreme event, a very extreme event.
Their strategy is betting on a twenty percent decline.
in the S P five hundred in one month.
Which I think may have happened
Once or twice.
It happened on Black Monday and
Nineteen eighty seven.
In one day.
But they don't actually need to have that happen to
monetize the strategy, they just need to have a very big decline.
Very rapidly.
So that happened in two thousand eight.
Happened a couple of times in the two thousand tens.
And twenty twenty, it happened big time.
So I imagine I mean it's for somebody who's running a fund like this, for you or Mark, that there's the watching the numbers
And maybe that form of bleeding chips stress over time. But there's also you have investors who probably in theory are very comfortable with the strategy, but who also
panic or have other issues.

Is that
The manners.
To package a product.
As insurance.
That allows the investors
To increase her exposure to the market.
Yeah.
So
Think about it. Is the strategy in and of itself positive, a huge return?
But more interesting is that it was hedging something.
That went up? Since then? I mean it went up like uh two full. No, no, no. Two uh uh in total.
Since say Nine two thousand seven.
Oh since two thousand seven, yeah.
Say twofold, maybe, and it allowed people to have a larger position, larger exposure to the market.
than they would otherwise. And and also there's a cocktail of other strategies.
That definitely
Then farewell.
Because they entail diversification away from stocks.
This one allows you.
to have stock. So it's very weird because Mark is always bearish on the market.
But he provides people a product that
Couples very well with a very long stock position.
That was what what was the secret. So
Given that it's backed that way.
Investors.
Tolerated.
Some drawdown, not too much, on the insurance.
You see well looking at look at uh you know the insurance versus the insured. Exactly. Versus the insured for versus I mean hey hey, this is my differential P L. And it's the same thing when when I started trading option, have an option hedged by stock.

And sometimes people only look at the stock performance and some people only have the option performance and tell them no, it's inseparable.
You see, you got this is called a delta, right? So that was how
They manage. You have to understand that
We are one trick or
Mm me intellectually I'm a one trick pony. I think of nothing else but uh tail risk. Everything's backers around Taylorisk that I do intellectually. But Universal is a one trick pony.
Only does one trade.
So if you do.
Only one trade.
And for a couple of decades, believe me, you know the tricks.
Right. You know how much to put on? Not too much, not too much. You see if you do just what trade. And then people come to university. I say, No, that's what we do. Won't you do this for us? No. It's like you're making Maseratis, right? And someone comes to you and say, Hey, won't you make trucks?
We don't do trucks, when we make bicycles. We don't do bicycles.
All we make is one single item, that's it. One single size.
And that is
The main criticism
Mon trick Pornice.
And that's
What we're proud about. That's the selling point.
Of Mark's uh ideas uh one thing, just one single thing. So when you do one thing.
Professionally.
Yeah, well it makes me think of uh I'm gonna butcher it, but there's a Bruce Lee quote which says fear not the man who's practiced ten thousand kicks, but the man who's practiced one kick ten thousand times. And let me come back to something that you said, Nasim, which was that
A lot of these other shops who maybe attempted something they thought was similar went bust.
What were some of the fatal flaws or mistakes that
Well the first one okay, the first the first flaw and this I noticed in our days a lot of clients that had initially when it started Empirica.
Yeah.
Or divert it into other funds.
Who were
Actually mitigating.
The strategy.
By instead of say you can't buy puts on the S P five hundreds?
You buy puts that are cheaper in some other commodity.
You see, and and hope that they would correlate.
So it was there was uh dependents on correlation. So I know someone
We actually went bust.
It's it's called overriding the strategy.
Buying puts on the S P five hundred and selling puts on the German index.
to collect more cash out of the trade. So that way you say, Oh, have more staying power. And his investors were proud, till guess what happened?
The German market went, not the US market, the thing exploded.
And they're out of business in insurance.
Okay. So a lot of our competitors tried to mitigate the strategy. We were
Absolutely first. The other thing is
That you notice with uh players in Universal. If you see if you met Mark, you'd understand it.
There's no question.
That's what we're gonna do. We're not gonna mitigate. No correlation, nothing, just all we do is
We don't do nothing else. That's it. We don't cook anything else. We don't no we we want many we don't add manis to our show. We will not add my ministry to our shark. And in a way, I told you the log road
Not the hack. We don't hack the trade. The long road is the best.
So in a way, I started liking your idea of hacking.
And until I discovered over time that basically all the things I've enjoyed doing were the things I reverse tacked.
So now let's take the long road.
Like right now.
Last week.
And the seventeen hours of cycling.

So that's a long road. That's not a short road.
Whereas when we met
I was looking for shortcuts.
The universe they have no shortcuts.
And he takes no shortcuts.
So I've been known you now for fifteen years.
I know I've met you for fifteen, sixteen years.
And I think that forecast. And it was very good that he wrote that book for one reason.
To put some story and narrative around the idea of precaution and tailor risk for society in general.
And also because of fact tracking.
The document because a lot of these stories are legends of this has happened, this and that happened, it was a perfect fair fact because it's fact tracking, reflecting.
All of it.
Results and stuff like that. It was fact checked.
So sort of fact checking
the importance of tail hedging.
For society. And that's to me is greater than that details. It's like
Having finally a document of someone who bothered to look at the details
And went through a a rigorous uh
Many hours of interviews of sound like reviewing documents and
Double checking the facts versus anecdote. So what what compelled you to write
This book.
Of all the things that you could write on, why did you choose
To write this one.
The birth of the idea of the book was in early
Twenty twenty.
And we all remember what was happening in early twenty twenty.
The world seemed to be unraveling.
Yeah, we had Covid, we had
you know, protest in the streets. We had extreme
political
Uncertainty.
In this country.
Lots of things going on.
So
The first thing that happened was in
April of twenty twenty.
came out that Universa had posted a
Three month return of
More than four thousand percent.
On their positions.
Which was quite eye catching and got a lot of news.
I you know, reached out to Mark and was like, Holy crap, what you know how do you guys do that?
So that happened.
And then I came across a paper that Nassim had co written in January of twenty twenty.
About
Covid. It was a glaring warning.
to the world that this virus was very deadly.
And people needed to take extreme precautions.
Against what was coming.
You know by
Social distancing, other things, advice to politicians.
But they needed to be very aggressive about this.
And it kinda occurred to me
I'd known Nassim and Mark for a long time and I thought
We're in a period of extreme duress.
Where lots of people are just
Kinda
looking really bad. They're collapsing. They're losing money.
They're making really bad decisions about
Covid.
Everybody is confused.
These two guys seem to be coming out of this insane period.
Looking very smart.
So I thought what is it about
Their world view.
that allows them to go into a period that makes a lot of people look dumb.
Look very smart.
There's something about that
The
can map from what Universa does to what Nassim does, and it's it's this view of the world
Of you know, of black swans, of extreme events.
Of being prepared for them.
And know what class of events
You should be prepared again. So in other words, know where they're going to be coming first.
So the and and and pandemics for me
was something I was working on since two thousand seven.
They even discuss it than a black swan.
That pandem what you have to worry about is a pandemic.
For financial mental because of connectivity.
Well no longer.
Like in the eighteen hundreds, where you know, you could have a crisis here and not there. Everything's so connected.
Yeah, it's exponential. In in the financial world, and the same thing in the physical.
You see the the the the plague, the great plague took something like three hundred and some years to go from Constantinople
To Northern England.
Three hundred some years.
Today is just a weekend.
For the whole thing. So the entire planet. Flying on Louis Tans. And Justinian's plate could not come to the Americas, there were no air France or no
Trips at a time. And now visibly they it's kinda so what I'm saying is that we are in a different environment. Just like
Culturally things can spread. You have the Google effect. The same thing.
Should apply to pandemics.
So this is why we were working on but Yanir and I and and other people.
On
And particularly a fellow who was probably one of the smartest people I've ever met.
Who's the head of civil service in Singapore.
At a time.
And then retired later.
And we were all obsessed.
Well the great pandemic that would come.

And we thought it was gonna be Ebola.
So I mean you have to worry about pandemics and
Later on I wrote a scientific paper, a scholarly paper on um pandemics.
That I didn't really finish.
And when a pandemic struck, we put it to nature physics.
And it went counter nature physics is a very prestigious, as you can guess, uh scholarly publication. And it
silenced a lot of the epidemiologists who were like nitpicking, similar to economists like nitpicking when when you have the what I call extreme properties.
And at the time in early twenty twenty
You had a lot of epidemiologists, even the WHO saying
We don't understand the nature of this pathogen. We need to wait and figure it out.
The advice was
Kinda like the um
What's the the movie about climate change? Don't look up.
Where the the president is saying, Let's sit tight and assess.
That's what the
Message was we were getting from our health authorities in early twenty twenty was
Sit tight and assess.
And that's a recipe for disaster.
Nassim and his
Group were saying.
Take action now. If you wait around to sit tight and assess.
You're screwed. Exactly. If you must panic, panic early.
Panic early. If you must panic, panic now.
Black and finance, and anything. You got get out now. When it was easy, for example, to limit the flights out of uh Wuhan or
It was you didn't have to do lockdowns.
You could do lockouts.
I mean and there were methods used by the Ottomans.
Yeah, to install the Ottomans and the Austrians had, you know, uh the the world was separate.
But they had a lot of uh traffic.
And it went through what they call quarantine uh spots.
So that you would go into a uh
Yeah.
Sort of hospital that has quarantine and there's seven days one way and nine days the other day.
And they would implement that the minute they smell
And I think right. And they had rules. If you come from India
More days the Ottoman had these rules didn't come from the Ottoman. This long experience dealing with with pandemics and how you stem them
By stopping them at the border. These things were called Lazarettos. And towns that did not have Lazarettos. Venice, of course, their maritime power that had Lazarettos, they did very well.
But uh Marseille, France.
was decimated because they didn't have Lazarettos. So the lessons we need to learn repeatedly. We have to learn from history how people handle that. They cut it in the egg. That's it. Yeah.
And it's easier to track people at the border. You don't need to have quarantine. You can just test at the border.
We didn't test the United States at the border.
Until a year and one month?
And to the pandemic.
I don't understand. You have lockdowns, but you don't have lock outs. I mean just test other borders. Just test people at the border. That would probably use the fellow from Singapore
What's testing at the border.
He said the way to control it is by knowing especially testing people without
They're being aware of it.
And they started the first thing with his detect temperature before anybody knew about these temperature things secretly at Singapore. So it was I guess they had a warm up with SARS, so they had the thermic Exactly. They had the but they he he's the one who started it.
And they were doing it secretly before it became public. So people w wouldn't take anti piratic uh drugs before landing. So but the whole idea is that you have to find fixes and they're not complicated.
And one analogy I'm gonna give
This is the banking system.
That the banking system
Thanks.
Monstrously profitable enterprises.
They make money off of your the float, the money you have
that they're the check you didn't cash, right, or stuff like that, they make tons of money.
And guess what? They blow up on the risk that bring them
Tiny amount of money.
You see selling that option that explodes every ten years by saying, Oh no, we're in different environments will never happen.
So sitting on dynamite.
So
That tiny
Tiny, tiny tail option is what costs the making the system.
They lost more money than ever made in the history of banking in nineteen eighty two.
Money Santa Bank that is, and did the same two thousand seven.
Okay, and a business that's hugely profitable except for that tail event.
So I'm saying that if you just remove that.
Max will do well.
It's the same thing in society. If you figure out how to remove that tail risk
Sometimes not complicated. Well let me ask I'll stand in for the audience and also for myself and not to throw my audience under the bus, but what are the incentives or
the circumstances that prevent them from
taking a certain percentage of their assets and allocating it to something like a universal
So that they're
Are less.
At risk in that way. They just don't have to do that. They could just avoid some trade. But let me explain to you the dynamics of the bonus system.
This led to my book skin in a game.
Later on.
If you have skin in a game, you're gonna worry about blow up because it's your money.
If you don't have skin in the game, you're CEO of a company, or your uh fund manager, and any kind of financial venture.
What is your incentive?
Is to print good numbers.
Because you don't pay for the downside. So you put good numbers, you collect money on the on on on the profits.
Annual bonus. An annual bonus. So this I call the generalized Bob Rubin trade. Generalized Robert Rubin trade. He made a hundred million dollars at Citibank or City Corps City something.
Over ten years, about ten years, he collected hundred million dollar compensation.
The bank was insolvent in two thousand eight.
Near insolvent. If it weren't for taxpayer.
And it was the last minute.
All he had to do was uh, you know, write an apology letter.
We didn't see these events. It was a black swan named after
book by a very, very stubborn man. So something like that. So th that's all they have to do is say, I'm sorry, right? You keep your bonus. You don't show up to work. So this you can generalize. It's the same thing with supply chain.
With a supply chain, a lot of firms concentrated everything on one supplier.
Instead of being diversified.
What did that lead to?
Right.
Okay, better bottom line.
But when I call pseudo efficiency.
Because they're short of that option and it so happened that if their supplier is in Wan
Guess what?
You got a problem, all right? But that problem was not doesn't show in the numbers. It shows after it happens.
It's the dark side of optimization. Exactly. What I call pseudo optimization. Like uh if you drive a Ferrari five hundred kilometers per hour.
You're not gonna get there faster than if you ride a bicycle.
'Cause I was like never gonna get there.

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Nassim, I have a question for you about a letter and then I have a question for you about
Personalities, Scott. So
Temperament may be another way to put it. So is it true that you wrote a resignation letter
your first day at a trading job and put it in your desk drawer. I read this on the internet. I don't know if it's true. You can't believe everything you read, but it was from The Guardian, so I thought it might be credible.
One thing is uh actually as I said, I recommend people do that.
I wrote that but not on the day I started.
But I uh recommended that people'cause you you feel relief when you do it.
Mm.
Because
Then you can continue on your job without feeling
Like someone's controlling you.
You've got the gun loaded. The whole idea of flying behind you thought about about that problem.
So you write the resignation letter and you
Don't date it.
Ha ha.
I'm very
Fascinated by your
Ways of thinking.
the way that you've embraced different philosophies.
And you emailed me an aphorism in two thousand ten.
And uh you can correct me if I get any of the wording wrong, but it stuck with me.
This is in two thousand ten.
Here's the aphorism or the quote.
Robustness is when you care more about the few who like your work than the multitude who hates it. And then a parentheses artists. Fragility is when you care more about the few who hate your work than the multitude.
Who loves it, and then quotation marks politicians.
Have you always had that type of
robustness or resilience against criticism. Is that something that is inborn?
Maybe because I was
Never really someone who took
You know, established the ideas at face value.
So you necessarily have
You know, it violates some norms, some thinking norms.
And often people protect those norms by, you know, attacking a reputation.
And I realized that uh while riding full by randomness, I say, Hey you you're saying that what I'm doing is random, we're using the wrong models, it don't work. So they attack your reputation. So I realized quickly
It was time.
Then my reputation was gonna be under some kind of fire.
And I decided that no, my reputation is how
A few important people.
Or people who know
Something about the subject.
You mean
And it's not like I don't care about my reputation. I only care about my reputation in some circles.
And it was people.
I can talk to
To try to explain what it's about.
And it has worked out.
So but if you have to go defend your reputation
Are you doing the right thing?
It's too much energy wasted.
And it's not gonna help.
Haters are gonna hate.

This resembles another aphorism inspired by Charlie Mungers uh one of the Charlie Mongers, is that
Do you want to be the most
Ethical person.
What people think that you're corrupt?
Well you might be the most corrupt person.
But you should think that you're ethical.
Make your choice.
And use those guidelines.
It's the same thing. So except that the uh you know there's something in between and that there's some people
I care about.
And I want him, you know, to not lose respect for me.
Of course you start with your mother, your children or whatever your family members but there are also there's a lot a lot of people on the planet. And I care about maritation, but in these circles.
Not with
The general public.
So it allows you to take much, much more aggressive positions, which I've done over
A long life. And Mark, for example, has a lot of enemies.
And they're gonna pick on something, and we don't care, so you're doing the right things.
And how do you know you're doing the right thing if people you respect?
A prove.
Of your action.
Not as the general public thus.
So that
Segue to my question for you, Scott, which is in the process of doing all these interviews
And interacting with
These various players on the field.
uh these sort of practitioners, these investors and so on. Have you identified any
patterns that you think, whether nature or nurture
That seem to recur.
And people were
Good at what you describe in the book.
I would say I mean across
All three books that I've written which are
generally focused on
Wall Street trading hedge fund managers. I've met a lot of hedge fund managers.
Over the years.
None like this guy, I have to say.
We'll probably come back to that.
I'm not I'm telling you, I don't want to be identified as a fund manager. Yeah, that's true.
Um
It's an identity thing.
Many are very focused on making a lot of money.
That's
A very common trait. I mean
Mark
He talked to me about how you know he grew up in the eighties.
Yeah.
Identified with the
Reagan era, it was a time, you know, Wall Street greet is good. He told me he's like, Did I have a little greed of me? Yeah, I did. It was the eighties.
And he he grew up in a family that was uh
His father was a he was a minister.
in a church. He was sort of a hippie.
Didn't believe in pursuit of wealth.
Mark to the exact
I've said
View that
That was constantly something driving him was the desire to to make money.
A lot of other hedge fund managers I've met over the years just they have that drive.
And it's something that
Many people look at these guys and think
You're worth a billion dollars, you're worth two billion dollars, and yet you're a maniac.
You s you go into work every day.
And just go crazy you drive all your employees crazy'cause
You wanna be richer than the next guy.
I don't think Mark has that quite that sort of
insane level of greed as some do. I've I've met Ken Griffin
Founder of Citadel.
Disciple of Ed Thorpe who we talked about, we might talk about later.
Cliff Asnas, who is a uh
Stark enemy of uh friend,
Initially a friend.
Yeah, and I I have to say Cliff is a is a nice guy when you when you meet him. Not a nice guy, but is a fr I have friends who are not nice guys.
He he's also got a dark side.
Also somebody extremely focused on
being wealthy, very smart. They're all extremely smart. I think that's
And personalities, that's uh I think one of the things that
Um
drive my books is these are interesting people.
You know, a lot of them are mathematicians, scientists, they
Come out of university with a a different
Expertise and
Making money, but then they apply that on Wall Street to
Making money. So it's a combination of
They have to be leaders.
They
Or extremely driven
It baffles me'cause I'm not like that. You know, I've
A degree in English.
And I think that's actually why
Sympathize with Nassim's writing so much as
I came out of a traditional
That
You know, I love the works of Dosievsky and
Existentialism and you know, one of my favorite books is The Irrational Man.
And I came in to 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. You know, to me, I look at financial markets
And I see black swans, I I see fear and greed.
That to me is what drives Mark. It's not rational behavior, rational expectations.
What are some of the things that make
Let's seem different.
Or unique in those you've interacted with. I have some of my own questions and and thoughts on this, but I won't I would love to hear yours.
He mentioned his contrarian nature. It's not a contrarian nature, it's uh independent. So in line with I mean people say I'm contrarian. I'm I'm with a conspiracy theorist on many of the things. I'm against him on many other things.
Some are just contrarian because they have a father problem.
Okay. So so to me a contrarian is is is an explicit rather than uh attribute.
So but the other thing is I thought it was gonna be about me. It should be about the idea, the precaution and He's a lot more interested in
literature and philosophy and
Not financial market.
Drives him.
He doesn't look at the stock market page.
You know, every day like some people do. He's No, no, you you have to figure out what people envy us of.
So
You know, if you're
in a hedge fund business and and you have five hundred million dollars in a bank and someone else has six hundred million dollars, you're gonna be envious of that person. I was always envious of people who had more erudition than me.
Okay, so more aerodite.
And you realise that's that's what I'm gonna do.
Makes me thick. Being envious is not good.
You see? But at the same time
If you figure out
Who is them to envy?
It's not I don't believe in this as you say, Oh, people having enough. There's someone here from East Hampton.
The fellow who wrote Cap twenty two.
Lot of interesting folks out there. Yeah, he met uh uh financier at the time for Hedgehogs.

And uh the financier said what is it that

About you.
'Cause it was an author, a very successful one.
What is it?
That
Distinguishes you from me.
You know, look
He's told them.
I know the meaning of enough.
So in other words you know your upper bound and effectively
I don't play that game. I say there's there's meaning the I May I am.
Literally and I
Say envious people who are erudites.
Like if someone knows Latin
Uh very well. I'm I'm envious.
Someone knows Sanskrit. I'm envious.
Right. So th that's and I discovered that early on. So I made money on Wall Street because I wanted to make money on Wall Street, but I didn't think it was worth
The effort.

And luckily with the combination of Universal, I had so much leverage, you know, was smart on all the stuff that the spillover on me was more than satisfactory. So I have knock on wood a lot more than uh than I w wished.
So part of the reason I'm asking we're we're talking about the ideas, but the
person who's acting as the vessel or communicator of these ideas, the developer of these ideas is integrally related to, I think
the sort of totality that I want to explore. So part of what interests me about
your story and your thinking is how various inputs have impacted
You're thinking around.
Not just markets, but other things.
So for instance
Like the
Stoics and the
Seneca the younger and so on, or other philosophical inputs. Did those
come early and then aid you you think in your
career when you're active
in the markets or did those come later and you sort of always had a deep interest but were able to explore them?
At least. No, it's actually I was I started liking the stoics and are those people I've talked about, I like them much early on in my life.

But I went overboard.
For every idea I've had.
I did the exact opposite of what one should do is like if you had an idea, say, Oh, I have this idea, right? Is go look because I I don't consider myself so different from others.
And then particularly when you look at history of
you know so many tens of thousands of surviv if it was scholars surviving works. So
I went back and figured out of the scholars, of these scholars
Who had
Similar ideas or who preceded the ideas.

So and who started things like that. So I went into the
the empiric's the uh Eastern Mediterranean Greco uh Levantine, Greco Roman, mostly using Greek language uh thinkers. And then of course and to others about this uh fundamental skepticism because I noticed a lot of people are skeptical, particularly conspiracy theorists, they're skeptical of
Small things.
But not about big ones. All right. They get taken for a ride. It's find me a conspiracy theorist or find me someone who's
Naturally sceptic of all things. And I'll show you a turkey.
So
I I wanted to find people who were fundamentally skeptic, being skeptical to be skeptic about important things, not about small things.
That would be an example of a big thing.
A big thing like let me give you an example. I wrote a paper uh paper sh it was never ended up in a book.
On uh the stock market.
And religion. All right.
And the economist.
And I said that those who are sceptical about
The existence of God and not exist about religious matters.
typically tend to be complete.
Suckers.
When it comes to stocks.
They believe in a stock market or believe in some kind of pseudo scientific theory.
On whatever it is. Okay. So but they don't believe in religion.
And the reverse, all right. And people who are religious typically, they're harder and and there's some
I I don't know research on that. There's a guy called Barlahmi, Harlahmi.
Bar Halahmi, I think, who did some studies about skepticism, people go to religion about uh affairs skepticism where it matters. And I wrote about it, I think, in the Black Swansa, Scepticism where it matters. And I noticed that a lot of these big sceptics
were not skeptical of God and things any we can't do anything about. They were skeptical of
The Charlatan. The skeptical of things of someone trying to take advantage of you.
That's where you should exercise your skepticism.
Among the great sceptics there is a Bishop Ue. He was probably mo one of the second most erudite person of his time.
Second was there's a guy called Scaliger. The guy is phenomenal. He could
Translate.
And to Arabic.
He was uh Roman authors.
Latin authors, and vice versa.
Okay, Scala. Scalijeri. There are a lot of the Spear Bail.
Pierre Bale.
Has you know a lot of works. He's one of those uh sceptics.
Hume was one of those sceptics, but these people proceeded Hume.
Hume is known because he wrote and
A language of a country that had a lot of ships.
And a lot of trade, you know, across the world. But a lot of these ideas came from uh groups of people
In France or among Protestants in France and uh what's called the uh the Fideists?
Originates of course in the Levant, and of course you have the great Al Gazelle.
The Islamic theologian, Iranian origin.
Who definitely was showing you how how all these arguments
Are weak.
You know?
could dismantle arguments. About God.

Okay.
A lot of it's not. Spinoza is coming out of that.
Spinoza came very skeptical about the text
That was these people say okay, trust send these texts, okay, and be skeptical about things that really matter. And there was actually skeptical school of medicine, practicing medicine.
So what I went back through history, every time I've had an idea, I would go back
And see in history who preceded me, and sure enough
I haven't done enough because
Every year or so I get a letter from someone, Hey, how come you missed
So and so. Okay.
And and sure enough, I go back to the inserto and I add that person.
And this is why it it has survived the uh
Five books, the insert all.
But we're not here to talk about these five books, but this is a book.

Well, we're gonna talk about whatever comes up, but I do wanna hop over
To you, Scott.
And maybe discuss something that you had shared with me as a possible bullet.
In
the prep stages for this conversation, which is related to poly crisis.
and uh the new age of crisis. What does this refer to?
It's the subtitle of my book.
Most people have focused on the first part of the subtitle is how Wall Street Traders Make Billions.
Second part is in the new age of crisis.
I feel like that hasn't gotten
That much attention but part of
What I'm trying to argue.
is that
We are seeing a magnification of extreme events.
accelerating and overlapping.
There's a
Economist Adam Tuze, who's coined a phrase called the poly crisis.
Which he says these crises that are happening on a global scale are
Interacting in ways that the the whole becomes
Greater, worse.
Yeah.
Then the sum of the parts.
So you've got
pandemics, you've got economic instability, financial crises.
Climate change, which is a big focus of mine. Am I
Daily job of the journal
Which I think is sort of the
Big one in terms of
The ever magnification of
crises that we're seeing. We're seeing it in news every day.
And
What I wanted to do in the in the book is
Look at
Several of these crises
And
Think about how
We should be approaching them in a sort of a a risk mitigation.
Standpoint using ideas.
From people like Nassim.
I think the the central idea was as I was talking about the germ of the idea of the book was
Can you take
ideas that were created on Wall Street for risk mitigation
And
borrow those and apply those to other forms of risk management.
And
What Nassim and Mark do is they think about the extreme events.
And how to protect against them.
Mm-hmm.
Co wrote a paper about this exact issue called the precautionary principle.
It delineates specific categories of risk.
That
You should take the precautionary principle and apply it to
He has some specific ideas and he can talk about it way better than I can.
But you know, these are things that can be
Global
that represents systemic risk to humanity, things that can be exponential. Must be fat tail or I can actually be exponential thing things that have these properties.
That you need to take extreme precaution.
And not take that risk. Basically don't
Play Russian roulette with these risks.
And that's kind of how the book was structured was
First looking at the
The growth of the strategy
With Mark and Maseme.
And then
moving on to these other things that the world is facing.
And seeing if we could think about ways to
protect against these risks, something like climate change.
You don't really want to mess with that.
You know, it's a bit too late. We still have but there's still lots of things that we can do.
And that's
I think the book in a nutshell.
I was gonna mention earlier when you asked me about the birth of the idea of the book
When I first suggested it to Nassim and Mark
The seam said no way, I'm not I have no interest in in doing that with you. It took a while. And then you were like, I have these black and white photos, you might want to take a look at it. So I had you convinced him to do it. It was uh it
War him down I think it was more Mar.
Put the screws on.
No no no let me tell you what happened.
Uh to not be portrayed.
to mention that I don't self identify
as a
Finance person.
And once he
Made that promise.
Okay.
Said, okay, now we can talk because finance represents
A significant part of my life.
But this has been a theme with Nassim ever since I've known him.
So to me it was like
The identity piece. Yeah, that he's an identity.
I agreed because it's true.
It's
He's not been a trader for a long, long time.
And it's obvious where you know, where his interests are.
What would it I have to ask, so what would it mean or feel like for you to be broadly identified as a finance person, but to
Think of yourself more as a scholar. I wrote about it in in Four Bow Randles.
George Soros, and I met George Soros. One of the persons on the planet who impressed me the most.
One of those.
And I realized that George Soros
Mr. Career.
He wanted to be
A philosopher and a thinker.
Okay, he ended up making money and spending too much time in it and wrote drunk articles and books.
Or it's a one book.
Yeah. So yeah, it was not it was not you know, it was it was it was not
Not what he wanted out of life. Okay, he's a middle European intellectual who
Und
Like to be remembered as someone for
Well ideas.
And he envyed of course Carl Popper, who he claims was his professor, but it was beyond.
So
I wrote one for my readers. I said
Here's this fellow.
who is say okay, but he also does to distinguish himself from other financiers
He's also
Or with l has intellectual uh aims. I said I don't want to be there.
Mm-hmm.
I wanna be someone who produces
Intellectual work.
And who happens to have had contact with reality.
Thanks to training.
And thanks to uh Mark and the guys, I still have some contact with reality.
But I'm not cut for that.
When I was writing food by Ren, so it was
Two thousand nineteen.
Then I realised I was not.
I don't want to be like Soros.
Because unlike Buffett and the other people, source
Uh the identity crisis. He wants to be known as a philosopher. Okay.
That's not you know, and uh a life it's a life to control of them.
Buffer told me he wanted to write a book.
Um
But I
I used to cover him and uh
I was
Leaving the journal at the time to write my second book and
He was like, Oh, I really always wanted to write a book and never got around to it.
So there you go with you know the Oracle of Omaha.
Yeah. He wants to be thought of as an intellectual too, but not the same but but the the same Omaha
has something that I didn't put in a precautionary principle.
But that's probably very inspiring because you understood the asymmetry.
And if you say no a thousand times.
He says no.
A few doubts.
And that's the precaution principle.
Could you uh
Give people the precautionary principle one on one just to back up. Okay, let me ask you.
Fairness.
Slans.
To go to Mexico.
You go to J F K.
And they tell you they have uncertainty.
About the skills of the pilot.
But we think he's good, but there's certain what you do.
You're not gonna get on that plane and say, Okay, life is too uh important for me.
Mm-hmm.
You'll take a train, you'll take uh you walk, maybe you ride a bicycle, you know, take a few months.
But you're not gonna get on that place.
Okay, you change your plans and say, Okay, there are other plans or other countries too and other planes.
Yeah.
That's Warren Buffett with his investments.
Well, that's my propercaution principle, the idea that there's an asymmetry.
Is that and there's
Uncertainty about certain things is not good.
So the climate
For example.
If you have uncertainty about the climate, stop these models.
All right, just don't pollute. Try to mitigate. So that's the first
part of it. And people get it right away when I give them the story of a plane. Or I take water. I said this is less of water on the table.
There's no evidence that it's poisonous.
Would you drink it?
No, there's no evidence. There is no evidence that so but when you tell them, hey, you know, you should worry about GMOs, this is there's no evidence they're harmful. Yeah, but there's no evidence
They're not harmful. Okay. So the asymmetry where you put the burden.
of the asymmetry on. That's the precautionary principle.
But then what we did is we noticed a lot of people in fact it was a counter
Precautionary principle, but a lot of people were invoking it for nothing.
To say we're gonna have a non naive precautionary principle by delineating
The areas.
Where you should exercise such precaution.
Systematically as a planet or as a
Communal group. And what I'll say, number one
You need fat tails.
Now what does Fat Tail mean? Let me explain to you.
Let's say you go to planet Mars.
Okay, Elon would help you get it there.
You have connection?
And you have no news from Earth.
And then on the way back you hear that a billion people died.
Okay.
Which one is more likely
To be the cause.
Ebola?
Or um
Card accidents.
Et voilà.
No, but on a given day.
If you hear Joe Smith died today.
What's more like the Ebola or a car accident?
Car accident. Car accident. That's fat tails. Fat tails.
You have to identify uh things in backwards. If you hear of a big thing
Where did it come from?
Yeah, you have to get these, okay? So they have different dynamics.
Because it's because they scale differently.
So
In the Black Swan I show the difference with the following metaphor.
They are environments.
Where
You may have a large deviation, but it's not gonna be consequential because it can't be very big.
So if I take a thousand people
And put'em on a scale.
And add to that
Sample.
The largest human being you can find on a planet, how much of the total will he or she represent?
Thirty basis point nothing, okay.
And then if you go from a thousand to ten thousand
Dilut completely. So you can have a televent.
That's not gonna be consequential.
Extremistan is different.
Trimistan.
If you gather a thousand people and add to that sample
The wealthiest person on the planet.
How much of the total will he or she represent?
All of it. There'll be a running error. There'll be a running error. I mean there'll be on average on
The planet Earth, all right? That'd be in total, maybe they have two or three million in total, and then you have hundred and some billion.
Right, next. So this is where you have to focus on environment that produces fat tails.
And this is what markets are.
Universal is named after the universal mechanism.
That generates fat tails.
Okay, that was that was the name of the uh the card. So everything w we're in it basically is intellectually everything of details. So we have to identify what produces that.
Yeah.
And the financial markets.
And why it's gotta thicker.
Fat tails means that you have the greatest contribution comes from smallest number of events.
So concentration. Like for example, you have a lot of people, all the wealth come from one person.
It so happened that
Under fat tails.
The models.
that we use for risk management on Wall Street RBS. This is why I have a lot of enemies. This is why I have to protect myself against
Reputational damage, all right.
So
Because all the economists say to me all their models are based on on that.
So what is that deal? Practically everything the socioeconomic, uh
Life is fatal.
What is not fat tail?
Number of calories we're gonna eat tonight.
How many colours can we have in one day?
Tonight.
We can only go for the gold, I'd say.
I'd say we could each down a few thousand calories a piece. Two thousand two thousand say I go three thousand for me, all right.
Be I can play with fat and stuff. Three thousand.
That's nothing. How many calories do I consume a year?
Yeah. Not a single day is gonna make a difference.
Mm. Can you lose all your money in a single day?
Yes. There we go. So you have two environments and they're separable.
So this is why
The universal uh approach that makes things separable.
Right. The fact that you can identify what is fat tail.
You identify where models don't work, and you can identify where you have to understand and you have to use more refined
Tools to figure out
Stuff.
And then also in fatness of tails.
Number one.
Pandemics.
Number two wars. I've close
Close second.
Wasn't pandemics. Okay. And so you can use that to prioritize
Application of the precautionary principle or Bingo. And and let me tell you how.
For example.
If
Cancer is thintails.
Nuclear.
And tail.
If you could diversify it, it's synthesis.
If you can have uh a thousand nuclear reactors, all right.
If you can ensure it.
Rather than one?
In a centel, if you can ensure it.
If it can insure it, non insurable?
Fatell.

So the lot of things that are
Believed to be very risky, but they're not.
Like nuclear for me. I mean not for my one of my co authors, but I'll settle it with him with a beer or uh
What is English uh
Ruper Reed is a co author of the And also a major character in the book.
He's a very environmentally focused uh person. He's
a leader in climate these days and uh yeah he
He told me that's one thing that he'd
Disputed.
The precautionary principle paper was Nasim. Which was written with him first, uh drinking, you know, uh English single mosque. In an English uh pub.
in somewhere in northern England where the portions are like smaller than the what
They give you for espresso in Italy, you know, the espresso like you sip'em so the the so we had to have like
Again, it's like with the egg with you you and the eggs, all right. So to go back to the insurable, we don't have to worry about it. And a very simple example I give that when Ebola started
Or and later on when Covet started.
People using the arguments, yeah, you know, three thousand Americans die.
every year drowning in a swimming pool. That was something by the guy called Dr. Phil.
Should we shut down pools?
At the time less than a thousand Americans had died of uh uh of Covid.
And then I followed this present the following argument. I said if
I die drowning in a swimming pool.
My neighbor drowning in her or his swimming pool.
Has not changed.
If I die.
of Covid, the odds of my neighbor dying of Covid has increased.
So you have that transmission that makes it fat tilt.
That mechanism of transmission. So this is why you cannot compare
as basically the press in the beginning, the s call so called established press.
was against our uh ideas.
Because it was racist against China. They could not
Distinguish between
Risks of car accidents and heart attacks.
And risk uh things ready.
This is why, for example, I am in favor of vaccines.
The risk of sent tailed.
And I'm against GMOs.
Because they spread in the environment.
Let me ask you a question so I better understand. So with the precautionary principle with the example that you give of the water, there's no evidence
To suggest this water is
Poison is the same.
In my mind I was wondering if somebody could use a similar argument.
Against
A new vaccine.
Let me tell you what. The problem is we're not with the vaccine there are two things. Number one
If someone ha takes a vaccine and and you have part of the population that doesn't have the vaccine, it's not affected. But there's something more central here.
You're comparing two risks.
We have Covid versus a vaccine.
So you have to compare
And we know a lot more about genetic stuff in an individual than we know about how gene spread in a population.
And that vaccine story basically in the beginning say, Why don't you exercise the precautionary principle? I say I have to worry about the pandemic a lot more.
Yeah, in comparison. In comparison to that. Plus, very quickly after about a billion people had jobs, I was initially
skeptical about a vaccine in the sense that let's wait and see the story is
Are there other ways?
Because I'm really worried about Covid and people don't understand that the argument
They use ex post.
Covid is much more dangerous than you think.
And the vaccine is what made it
Tolerable.
So
When the had a
Billion jobs.
I showed the following thing.
That everything's that genetic.
The number of mutations.
To take place to cause a problem.
They have a variance.
And if they have a variance.
It's as follows.
You would see already in a million people because of so much from a scrutiny.
You would see
That Taylorisk.
To give you an example.
Hiroshima.
Okay, they say on average took ten years to or eight years, whatever to get cancer?
No.
We saw it and
Three months. Four months.
If you focus on the tail
Same as Guru.
Puru takes.
About ten years on average? The median.
To get Kuru from exposure?
But you have to
What is Kuru, I don't know. Kuru is uh bad cow disease. Things for which we have data of of early exposure and then early
Disease, only onset of disease. So I looked at vaccines with all these conspiracy theories and everything and the focus is enormous and can see anything.
But it followed that class of risks where
You know, you have to have mistakes going to take place in a genetic or DNA or
This is where after a billion jobs, I said, Okay, I'm gonna go for it. Okay. And visibly it's the risk is much smaller. It's a risk
May exist.
That's much more the risk of Covid.
And plus there're a lot of numbers about Covid people weren't aware of.
Number one, something that
People don't think about it immediately.
That Covid
Raised
The risk of death.
You're multiple of death.
Beyond the age of thirty, because we don't have uh
much of an effect for younger people. We or we don't think so.
The force of mortality or the property.
No, th it went up uh from Covid across the board in the same way.
Say for example you're exposed to Covid, you have ten percent chance of mortality.
One point one percent.
Ten percent increase in all called mortality.

It's the same for young people.
So past the age of thirty, it's about the same number.
So it could be twenty percent more depending on your exposure.
So saying it's an old people problem, they were dying as a multiple of their
Mortality rate.
So I took the social security numbers just to z you know and say, Okay, it's not my numbers.
Social security number.
Okay.
If you're uh
Female.
thirty year old you have one in seven hundred chance of dying, male one in four hundred chance of dying, that goes up by ten percent.
Okay. With Covid. If you're eighty years old, you have one and whatever.
It goes up by ten percent.
Or something for the same I mean depend the ten percent depends on the exposure period.
But it was almost flat across the population.
Yeah.
So I said, Okay.
Do you wanna
Increase your children's chance.
Or young people's chance of death by X percent?
Plus the effect it has on
Years lost and laugh expected is much more dramatic for a four year old than it is for a nine year old.
So this is how I looked at it. And of course by then we had eight billion traps.
So we had the answer.
How do you think about, say, GMOs? This is something I actually don't know much about, but in terms of the precautionary principle and risk assessment, how do you think of I mean a vaccine
is to counter a disease. GMO is just like manipulation that people
said, Oh, we've always manipulated animals, all right? But that's not true. It's sort of like there's a difference between
Flying and walking.
Okay, and the risk you can encounter, you see.
the GMO, the way it would s the gene would spread through
The environment.
Uncontrolled spread is uh fat tailed, whereas
Selective reading is very slow.
As Rupert Reese said.
He cited I don't know who said
That if your horse is uh blind.
Make sure you ride it slowly.
So there are two classes, like Midiocristan, Extremistan.
We don't understand like calories or extremely stand stock market.
Selective reading?
versus uh GMOs.
Well I mean you're jumping so many steps
It was GMOs.
So it's a different class of risk.
Right, because of the risk of a of uncontrolled spread. Exactly. And then and then you have a blight that spreads like Covid did the whole planet. And we're m much more connected than before. Plus they have never done
A proper risk
study on GMOs on the environment. Not one.
They're saying there's no evidence they're harmful, look people are eating it. I mean, I'm a scientist. I like to see uh the mind control studies, I like to see things, like to see something a little more formal than than claims. And and then you don't realize what happened. No matter what you say about Monsanto, I think would be a
an underestimation of their evil attribute because they really erect science.
Because they had groups of people who would go
And intimidate scientists. And people on a salary.
Scientists. I'm so free to lose their job.
Lose the post off position.
They would contact your boss.
There's contacts.
Practically everyone.
They did that to me.
But visibly.
It's like water on a duck's back.
Right.
How does it let us to the university?
Because of your commentary on GMOs. Because of that paper.
And then uh somehow I used the R word in the past in French. It's uh it says just it's like uh
It says like you're a slow thinking person?

The R I got it, I got it. And then they would they would have fifteen letters for mothers of children with special needs.
Yeah. Who don't like that a professor at NYU would use such language.
That's insulting to my so but the point is when they showed me the letters
Different names, but it was like written almost on the same
Exactly.
There was a smear campaign. Plus there's a lot of other things they did. Petitions, all kind of thing, and online harassment.
But with me it didn't work. With others but but the people they select for these things.
Are usually dumb. Think about it.
Who would engage with smear campaign?
The brightest person you know?
No.
Okay, so so you can play with them.
So m Monsanto did is to cover up for whatever they're doing.
Via intimidation, they disrupt the science.
And they made people believe that hey, we' no evidence, I'm doing science is

Confibrator or whatever it's called, the Ludite.
Okay, yeah, you would have been against the fire. No, it's not the same thing. Anti science is a anti science, or because science, anti science. And usually they're never used by scientists.
And they had a few scientists who knew nothing about risk and probability. So that was but anyway, we had fun.
Fighting. It was a long fight.
But then what happened? They were bought by Bayer, and Bayer's a little more civilized than
Monsanto, and then all that disappeared.
So if we if we zoom out and look at the
Yeah.
How could that be applied on a
policy or regulatory level. Like if someone's listening to this and they agree with the premise.
And they said this makes a lot of sense. How could we
implement this on a
larger scale level such that we are less vulnerable to say
Possible risks.
Uh well actually in Europe the precautionary principle is
widely adapted among
International agencies and regulatory agencies.
I think that the advance that Nassim and his co writers made on the principle is is that it it can be kind of fuzzy.
So it can be sub seem to be subjective about how you
Or applying the principle.
I think what they did was create a category
grouping which can be used to
Designate things.
And you know, you could have I don't know, you could have panels that would
Look at it using these categories.
But I I think if it
were adapted more widely among regulatory agencies in the United States.
This is a
Principle.
As a way to think about certain kinds of risks.
Then it could be
More
generally applied and
Useful.
Like I said, in Europe they do use it.
GMOs are
Not widely adapted in Europe.
And primarily because of the precautionary principle?
And and they have lobbyists in Europe.
I know because they all attack me. I mean for so I see'em online all the time.
Coming from Europe, Italy, for example. Italy of all places, you know, that place you damage it big times uh reputationally. If you had GMOs and Italian food in Italy, there's no tourism. But they still have people there trying to sell
Particularly that when you sell GMOs, you also
Can use more round up.
Yeah. And and it's the same people who are producing both, right?
So one could be an excuse to sell the other.
To me one of one of the really interesting
Aspects of of the
Precautionary principle is the notion of
Uncertainty.
So w you know, when you look at climate change
The
Uncertainty of models has been used as a cudgel.
By the deniers.
And by the fossil fuel industry for decades.
that there's a level of uncertainty in these predictions. We don't really know
How bad it's gonna get. You know, we really we you know, we need to sit tight and assess.
The risks that we're facing.
And
What they showed is that
Uncertainty is a reason for taking precaution.
Because if if you are uncertain about the potential future destruction of or
Massive degradation of the biosphere.
Because of
polluting it with carbon dioxide and methane and and other greenhouse gases
Maybe you should stop doing that or realize that you're actually taking a risk. You don't you you don't know what the risk is.
So uncertainty is actually a reason for precaution.
Rather than just throwing caution to the wind and just saying, Well, we don't know so
You know, what the hell.
But let me tell you ironically what happened to me the first time I formated the argument.
It's actually in the Black Swan, second edition, and I was with David Cameron.
On stage.
And I said we have
Uncertainty about these models.
So avoid these models and just don't pollute.
in a paper I re l later rewrote with my friend Yanir and and others by saying the more uncertainty there is in a model, the more you have to be it's just like the more uncertainty you have about the skills of the pilot.
the more exact you should take another plane.
So
What happened the next day?
Twenty newspaper articles in the UK.
Call Taleb Clim Black Swan author is a climate denier.
Okay, trying to convince
Cameron.
probably have the closest industry of modellers.
It would be out of business if you follow these principles. So it's not like we got heat a lot more heat from the left.
Then from the right.
But why were they calling you a denier if you said me verbatim without following the whole argument.
And they say, Well, he said that and I basically named them by names and I went after every one of the twenty journalists.
I wrote to every journal.
Explaining to them what I said.
And I say they slide me out of context. And I wrote a chapter in
It's kind of the game.
About how what's the debate, an honorable debate is was where you represent the person's opinion.
Like what Carl Pockle always very faithfully.
represent the person's the position and then attack it. Whereas they were taking
Uh selected. Cherry picking from creating a straw man argument. Exactly. And that's Fourier would say, Give me a letter.
Written by an honest man and get him held, huh?
So the problem that that you have with the climate

That a lot of people have
An interest and complicating the story.
In fact you just say, Okay, let's forget about fossil fuel. Let's pollute with other things.
Just like I say, if a drug is dangerous
Say the dangers in the dose. Sorry? The dangers and dangers and the dose, the nonlinearity. We put that on a precautionary principle. The nonlinearity, the convexity, that's the theme of anti fragile, the convexity.
You're dosing the atmosphere with carbon dioxide.
You're gonna end up with a very bad outcome eventually. Exactly. So so give me let me give you an example to go back to before when we're talking about when I use GMO versus selective reading, WI speed and fragility.
A and the example I use in uh the anti fragile.
If I bang a car against a wall
At one mile per hour.
A hundred times, okay.
It's not gonna be
the risk of your bugging at once at a hundred miles per hour.
Okay. So this is w where if you have acceleration of H
Like if I jumped.
Ten feet. I'm harm more than twice as
Five feet.
So we showed we're in the presence of acceleration what to do.
And that part of the paper was never understood.
Because people don't understand convexity.
Although Anti Fragile is currently my most successful book.
It's read more in twenty twenty three.
than it was in twenty
Thirteen. Second year.
Publication.
So and same with Black Swan, I I know Black Swan is thread more in now than it was
the year after publication. But in spite of all of these arguments being presented.
People couldn't ask our paper.
Uh discovered why.
Something I figured out only recently.
When I y talk to young people of twenty three, twenty four.
They know exactly what I'm talking about.
The parents are the problem.
So what is convexity? Just to for uh to to to refresh. Okay. So
And again, we're gonna talk about Universal or uh other things embedded in a universal story, but that the convexity is
If the market goes down ten percent.
You make a million dollars.
If it goes down twenty percent, you make ten million dollars, you have to invest it.
And this is what everything is based on.
Well generally sorry. Yeah, they would call it convex.
And concave.
Probably the best illustration is how we fared in two thousand seven.
And I explain it than the black swan.
Right before it happened.

I looked at the risk of failing me.
By deserter, who you know, left Fanime and uh distributed the risk reports. Okay.
Well look at risk of anime, I notice that if the market say an interest rate or mortgage premium or something like that, has increased by a hundred basis points.
The lost X.
Two hundred basis points, twenty times X.
Three hundred basis points. I said
They're sitting on a barrel of dynamite.
The Black Swan.
Two thousand seven.
Five months later.
Okay, the start has gone on and eventually they lost the book six hundred billion dollars losses.
Why they said oh
They reacted.
To me by saying, Oh, we monitor our risk, we have fifteen PhDs. Okay, we've got fifteen phone fifteen trillion PhDs. It's not gonna help you with this. So this is convexity on the losses, and we're doing the reverse.
On the profit side.
And there have been some uh lot of people got upset.
The way Mark presents the the numbers that he writes
Well, the investors, you know, you file with the SEC with all the the numbers.
are available to tell them listen, we made four thousand percent on your maximum loss.
Okay.
Whereas uh if you invest in the S P
You can lose a hundred percent of what you have.
So the return you have on the maximum possible potential loss. In other words, when you go to bed in the evening
All you could lose is that much.
And how much these options were explosive on their maximum loss. All right. Yeah. So that was sorry. The asymmetry. But but that's not the first time happened. Nobody nobody noticed. When I was trading
And I discovered it
With the before the crisis of nineteen eighty seven.
There was a Plaza Accord where a bunch of people got together uh secretly on a Sunday and then and made an announcement we're gonna
support the currencies against the dollar, the dollar's too expensive.
Yeah, huge move.
I was at work, we had tiny risk.
An explosion of my PL.
Okay. They brought detectives or inspectors to figure out
Why the P L is so large for that so little risk.
Because you had the maximum risk. All you could lose is say uh X thousand dollars and the penal exploded.
Tell that's how it works, they couldn't believe.
It's they couldn't believe it, right? So
I
Decide okay, I'm gonna make a living. Now when you say exploded, this is in a in a bad way or a good way?
Good. Good way. I see. The PL.
Yeah. So I'm it the the P N L was too large for the risk. Say we're supposed to only say the computers couldn't handle the numbers. Yeah, no, those are it's high risk, high reward, how are you getting
Low risk, high reward. No, they said you make too much money, you gotta be taking risk. You're hiding something from us. And the computers would take something like um ten hours
at a time to compute the P L.
At the end of the P N L.
You see, so every time they said go redo it and stuff like that. And and I was frustrated because they couldn't understand it.
They couldn't understand it.
Um
You know, that's the beginning of the trade that became empirica.
University.
Something like
I remember uh when I was talking to Mark back in two thousand eight.
I think he b he would never tell me this.
Now but I was trying to figure out how they had such
Incredible returns.
And he gave me an example.
of a trade that they made and
I forget the timing, but it was like a
July two thousand eight S P
Five hundred put option.
Betting on a twenty percent decline in in the
S P five hundred.
But for two bucks.
After the crash.
He sold it for sixty bucks.
That's the kind of convex
Exponential return.
That you do not get in any other kind of trading.
And
You take that two dollar option, you magnify it over millions and millions of dollars.
You got
Four thousand percent return. Yeah, but I've there even more dramatic than two dollars becoming sixty dollars.
Because there was
You always look at how people have lost money because when you read
you know, reports and stories, they hide the losses because nobody's gonna write a book on how they lost all this money. It's always invariably the same.
There was a story of volume investors, I think.
They're selling out of the money options on gold.
And they're selling for five cents?
And end up have to mine for
Forty dollars.
And then there's a Niederhofer story, same story, where they're liquidated and um
Well, he blew up. I mean he blew up many times, but but but one time you can see the prices. He sold them for five, ten cents.
And then they had to buy them back and I was buying them back to forty dollars. That's what I noticed was selling volatility.
Selling out of the money, the uh tails say selling rare events.
You know, and you don't need a large deviation, just people panic, they pay anything because or sometimes they're forced to
Because the the the uh you know, the the clearing houses or counterparties cannot handle the risk. See gotta close you out, sorry.
Yeah.
And you close out there's no liquidity.
It's like the famous saying, sell everything.
And then the clerk.
I told you sell everything, why not moving, said
Please tell me to whom, sir?

Let me ask a question that's been sort of th percolating in my mind, and it may not be a good question, but I'm curious. You mentioned Soros, and I don't know that much about Soros, I've never met him, but
I wanna say Soros is also known as the man who broke the Bank of England, right? Or the
And the British pound. So one of my questions is in this increasingly interconnected world where
the equivalent of the Black Plague, whatever that might be, and it could be in pandemic form or otherwise, instead of taking three hundred years is over a weekend in terms of spread and and things are so
Interdependent.
Is there the temptation and the risk of
Investors
Catalyzing.
More crises.
Or different types of crises, not just
I don't wanna say being spectators, but there's there's one thing to have an investment
Methodology.
That
has certain
premises and so on that then results in in a
windfall return at a certain point in time with
But
I'm wondering if I mean it seems like there are hedge fund managers. I'm not saying this is what you are, there are investors out there and hedge fund managers who take very active roles.
in companies, let's just say that they want to take an uh position and activist investors and so on. And I'm wondering
If
investors will be able to do
More damage.
as the world becomes more interconnected.
I think that
It's possible. I see the damage coming from
Negligence and bad risk taking.
That ends up
Creating a contagion effect.
Just the same thing that we saw in not among investors, but like in the banking
Yeah, banking or hedge funds or
Crypto
I think that
Financial markets
Over the past twenty years and increasingly with electronic trading.
Um
More and more interconnected than ever.
Yeah, this is something I got in my second book about high frequency trading is how
You could see the potential risk of some
giant move in a say a derivative contract or an index, something overseas.
Because trading machines are
correlating all these assets globally, electronically
At hyper speeds, micro second speeds.
But you could see
something move very rapidly
into all sorts of asset classes.
In a way that is impossible to stop because it's so fast.
That can be triggered.
By a trader or it could be triggered by a computer.
Just go on bananas.
We have noticed very early on in the nineties.
a phenomenon that international diversification
Was no longer a diversification.
Why? Because of that integration.
Globalization.
A lot of good things.
Pull people out of poverty.
But a lot of things happen with it. Number one, you can't diversify anymore.
Because of stocks.
Collapse here, as we saw in eighty seven.

Everywhere for large deviation and now for mild deviation starting in the nineteen nineties.
And also, I mean the funding disappears everywhere or the comes everywhere. So this property of globalization
Is similar.
So the one that came with it is that
We're gonna have shortages.
And then gluts.
Now in a phase of in between shortage and glut.
But shortages can be very deep.
Where containers go up.
Ten times and uh
Shipping uh container.
And you're gonna have
A lot of
The reverse happening. Because of the I've never seen shortages without
Lots.
I've seen gluts without shortages, but never shortages without glut. But they're very deep. We didn't have that before.
We all depend on
The world's getting bigger and big and bigger, but it's like a large movie theater.
Was the same door.
See, it's the size of the door that matters when you want to get out, not the size of a theater.
So the supply chain is narrow.
And getting narrow. And it's got narrow.
Now probably we'll expand and branch out and we'll have a better networks.
But people would not understand that. This is this is why people like to sell tail events, because it costs money.
Two
Diversify.
Your sources of uh
You know, whatever.
And your supply and it also cost money to hedge
Tail risk?
Or you think it costs money, you have the illusion.
And sure enough I realise that if a hedge is expensive, we're you know think of
Absolutely.
How much more expensive it is. Mm-hmm. So what's your perspective on
the capacity of
Investors.
Two
Catalyze.
greater risk, not necessarily the systemic
risk taking, although this is certainly a factor of, say, the banking sector or
Fill in the blank.
But
Very well funded.
investors who are looking for
Black Swan or Black Swan like opportunities.
their ability to create a self fulfilling prophecy in a in a sense.
Does this a prediction of self fulfilling?
And also self cancelling.
See early on the self fulfilling, people get on the bandwagon.
And then sure enough
That's also the glut.
takes place after the shortage. But one thing, you know, that's quite one should realize was the structure of the world in which we live.
That
Although history is not indicator.
For many things because we didn't
Times of different connectivity and stuff like that.
The rules.
Of what could go wrong are very simple.
It's like as pandemics. The Ottomans and the Austrians figured it out, or uh Lazarettos, okay so right. The Venetians were expert at it.
The rules are very simple.
There are not that many of them.
when we uh talk about precautionary principle, a lot of people have the illusion that it multiplies into zillions of regulations.
No.

One comment I would like to make about the regulators, like European regulators. They're great at being regulators.
That was the regular pleasure.
And if you put two hundred thousand people in Brussels
You know, of course they have great French fries and beef tallow.
Whatever. Good duckfight, whatever, but at the same time.
What comes with it is these people are gonna regulate
You out of
Existence.
On things that are trivial. They like to do the trivial because it's easier to sell.
So they regulate
Vacuum cleaners, all right. The what how much energy should be or the speed of your windshield wiper on a farm tractor if it has windshield, that kind of things. But they can't control the water.
And they didn't think of Covid.
Of all the people we spoke to, because a lot of people try to talk to me about risk thinking that, you know
You should talk to someone like me about risk. Okay. And usually I get upset because hey, where's the next black one?
The Singaporean government.
They didn't fare very well with Covid as much as they did before, I think.
Maybe because my friend was gone or something, but
They knew they said, Okay, what can go wrong?
And let's reverse engineer
Or heads. The reverse of what you think.
And build things in a way to stand
That kind of uh
Other other examples outside of Singapore, I'm very interested in Singapore and I guess who is it, Lee Kwan Yu, and the entire story of Singapore is pretty wild.
Any models.
Or leadership outside of Singapore. Not necessarily related to Covet, although it could be that you think does a good job of
Applying.
Precautionary principle or working backwards in the way you described?
All traditional societies
So traditional.
communities like Italy with resist GMOs.
And also people online may say oh it's anti scientific, they know it's science is not about that, for example.
So it depends on which domain. There's some domain some people are good at some domain, not others.
Like Russia was very good at some classes of risk, but not visibly at

Like uh Italy got paranoid
But nuclear.
There's one attribute of our environment that we should realise
Is
The non trivial effects
Um
Propaganda.
Oh to mind the people.
Take the one's well organized.
The KGB
Was not very good.
That's fine.
We discovered.
I was very good at this information.
So everybody panicked about the nuclear.
Because they didn't want Regan to put
Ballistic missiles.
In Germany.
And they infiltrated uh Putin knows something something about it when he was in Germany, they infiltrated all these green movements.
By directing the Greens against uh nuclear.
Example.

So
I truly think that we're suffering a lot from this disinformation up today.
When people worry about some risk, not others. I mean another example of that is Germany with Fukushima.
Yeah.
that freaked out over something that actually didn't kill people.
Shut down their entire nuclear program and
In its place, opened up a bunch of coal fired power plants.

So which is you know.
Obviously much more
direct risk to humanity then
Nuclear power plants that don't kill people.
The radiation in uh Chernobyl.
I knew that when I was writing The Black Swan. I didn't talk about it because I I knew it was dicey.
was lower than that in Utah.
But that's not the point. It's Chernobyl is too big. If you make small reactors, let'em blow up.
So what happened if you could because of convexity.

You see, one reactor
is vastly more dangerous than ten small ones.
And the ten small ones are not likely to blow up at the same time.
I don't know if one reactor how what's the what's the factor, uh you know, what's the the multiplier, but they are nonlinearities. But definitely when you have a lot of
Small ones that can blow up at different times. One thing about our previous conversation when you say the banking sector, banking sector the banking sector is very safe for one reason.
Eso yo todo sí.
With high paid bankers living around here.
You see, have big soho lofts.
Ten million dollars of loss basically is the your utility.
Because they don't let it go under.
It's not the one you gotta worry about.
It's the uh the saving it again that you have to worry about. The effect of saving it. Like the we saved it in two thousand eight was what?
Government debt.
And it exploded.
And then again in two thousand twenty, there was so much commercial paper, so many things.
Again, all these things aimed at saving the financial system.
Bankwise.
have spill over effects. But they're gonna save the bank system because you cannot operate without it.
Plus another thing has happened is that banks used to take a lot of risk.
Since two thousand eight, risk has migrated.
From banks.
Two hedge funds.
Now it's less concentrated, but it still can be concentrated.
In what way can that be concentrated?
In other words, he has a friend who has a big fund that's larger than a lot of banks.
I'm not mentioning names, or you had a lot of
Big hedge funds. But I guess they can be diversified. Hedge funds have skin in the game.
In other words, the owner of of the hedge fund has money in it, unlike a bank where you just have
The upside, not the downside.
Of course, long term capital management is the counterexample.
No no it is if people the the the skin of the game
Is a disincentive, of course.
But it also scan the game as a filter.
So where are the people from is anybody from Locked Up Capital Management still around?
Last I heard John Merryweather was uh
Uh ten years ago was trying to start a hedge fund, but there you go. So so if you can't recover, the skin in the game is fallen effective. The reason you don't see crazy drive too many crazy drivers
Is it because they're dead?
Because you inflict risk on others, but you experience the same risk.
So you tend to exit the pool.
So it seems then
Maybe I'm
Misunderstanding, but the the migration of risk taking to the hedge funds
assuming that the GPs or the the people running the fund have
Sufficient skin in the game would seem to be a
Net positive.
Hedge ones are okay.
But we have had uh the the risky part, the ones the most fragile, the private equity.

And of course.
By far.
Uh people who need funding.
Because
I don't know if you realize but we had since we had our uh three bottles of pink champagne, or it's like four bottles, whatever, a lot of pink champagne to uh celebrate Lehman's departure, right, from his town.
Since then.
We put them straight that close to zero.
So when I was
student and there's for me an investment was something
That's an ex cash flow.
So you build something that generates cash flow.
So you value cash flow and or residual value at the end.
Okay, and that so we can have you can tolerate negative cash flow if you're gonna get some later on.
So it's like us, if you you discover gold later on, but there's the the so the business model was cash flow based, whether short term or long term cash flow.
The world has changed.
All right.
In the funding world.
What is the game now?
Is who you're gonna sell your company to.
I see you're talking about startups in this case? Exactly. Startups or or or a lot of investments. You buy an apartment, you buy a house, you buy a building buy something, or you invest in some crazy idea.
And someone was was contacting me about L and M models models, you know, Sh T.
By saying, Oh, we have the startup, I'm investing in the startup.
And looked at the rationale and then he said, Yeah, I'd be able to sell it and within two years. I said, Listen, this is a trap. Okay. So companies, so even Twitter was operating
On uh following modus.
We go to the market.
Okay, as a cash machine.
So you have to generate cash.
So basically everything was came from a it has Ponzi characteristics.
Someone else will buy our uh company or we're packaging a company to sell it to someone else.
Okay now.
That started before the great financial crisis, but was very moderate.
If course it took place during the crazy period of the internet bubble, and then died.
So we had had episodes of that effect.
But now it's ingrained in people have now for fifteen years of low interest rates.
You have people in their forties.
I've never seen interest rates.
And they don't know how to behave, they don't know how to invest. So I think the most fragile part today is about the banks.
Of course, as we said.
And it's not hedge fund because they're sort of like mature adults.
Typically.
It is those startups.
And and the VCs and venture catalysts. But venture catalysts actually played quite a nasty game because they cashed out all the all of them are rich.
I'm company that never made a penny.
You see, I I know a lot of think how many billionaires you have in Silicon from Silicon Valley.
Right.
Who ever made a penny.
It's valuation, maybe, as I say. Yeah, yeah, there's there's a lot to that game. The I I will say also I think there are gonna be
Tremendous.
fatalities in the next probably
three quarters in the startup world because uh there's been a lot of contraction of funding, which I think is ultimately probably a good thing.
But a lot of these companies are raised. It's not it's a necessary thing.
Yeah, no, it's it's well. I mean it's calling of the herd, so I think we're just but think about it. This will we'll finally we'll get waiters.
And it's because we have shortage of waiters.

Okay, we we finally will get wait I mean you go to restaurants and and and they can't uh you know, they have one waiter for the whole room and and they said we'll get more waiters, we'll get more uh
People who you know will help you uh you know, mow the grass and stuff. I mean we've got a lot of lot of supply of uh
Former former startup founders.
Serving you your Negroni. We'll see how it shakes out. I'm curious to see.
This team are there any
Ideas, concepts you would like to discuss, is there anything that we've missed, Ed Thorpe? Convexity is a sense of things.
So I started writing on convexity or studying convexity.
You know, after between the time
We had the uh the eggs and the champagne. The eggs no no the the the eggs. The eggs was two thousand two, two thousand one, two thousand two. And uh since then I I had a some some some eighty scientific papers.
So my my enemies they don't have to handle it because they would can't say that it's not science. So anyway, so
I think the the central thing for me is convexity and it led me into papers on oncology.
In medicine, because again, college new stuff, doctors knew stuff.
But the language they use did not accommodate.
This notion of convexity, ten times one, the nonlinearity, they sort of suspected it, but it was not formalized.
Yeah.
So just publish something in oncology.
We did a lot of stuff in the pyramidology.
on tails, so convexity on tails, and convexity is is is the most important. For example, people don't realise that convexity means your life volatility.
Concavity you don't have the zone where you're convexed.

And
People missed the point that was already mentioned in a paper I wrote before Covid.
On citing sources.
For lung ventilators.
If you give someone a dose of a hundred percent
The person may die.
But if you give that person eighty percent, a hundred twenty percent.
They have much higher uh survival rate.
Why? Because I like volatility.
Like heart rate variability. Like heart varia when I wrote Anti Frangital, I was writing it between two thousand nine and two thousand twelve.
Nobody believes in high ability.
See, and they thought you need to study heart rate, it's a predictor of death. So it's the same thing for a lot of things where you have that's a convexity effect.
So that's sort of what I'm focusing on now.
Is these convex responses convex stuff?
Apply to fields
Where
You know, they need to be applied, like uh medicine. And the same thing with nutrition.
But nutrition figure out early on, intermittent fasting.
Well it's a convexity thing, instead of having a dose throughout the day you have it and it's a different response. But there's a limit.
You'd rather have your calories concentration limits. I'd rather you have your calories
You know, once a day is okay. Once a week, uh, not so sure, you see? So there is an optimum thing. It's the same thing can be generalized to other things. This is this is what I'm working on.
And it's taken me a while. All that comes from optionality, option training.
Does it make sense for people to become familiar even if they never engage with options?
In some basic education in options trading, or would you say skip that and study? Skip that because I'm gonna sell options.
But
I would say they used to say nine tenths of option players will be uh sellers.
I think it's ninety nine out of a hundred.
It's so appealing. Someone's gonna give'em the story.
You sell option to have steady income.
There's nothing people like more than study income. And the reason
Mark is in business because he's the only person I know.
Who doesn't care about
The psychological prop up having study income.

Well, everybody else will have a study income, they would debase the trade.
Do have a study income.
And sure enough, you get studying the income by selling the tales.
And that is generalized.
To give you an idea, companies that have steady income?
A short an option somewhere.
Say that one more time?
Companies that have steady income.
I'll short an option somewhere.
You see, so it's not trading option that will help you is looking at optionality in business
And in places who short that optionality.
That you can have two funds.
They'll have none of the same return.
One fund can have
A lot of short options.
And one phone.
Can be robust.
You won't be able from the outside and security analysts have no idea.
Weapons of mass destruction. That's what we're called.
Ordinary people should stay away from these derivative.
Contracts.
And it's one of the things that I
had to deal with this book with it's with my editor and
people who I've who've interviewed me since then is
Everybody wants to know how to do the University trade.
You know, Mom and Pop. How how how do you how does Mom and Pop
protect themselves against these things'cause
You know, I in the book I warn these
Down turns are very bad for your portfolio. This
These are things that kill you.
You know, if you go down forty, fifty percent
You know, this is something that Mark talks a lot about. You lose fifty percent
Get back to where you were before it happened, you have to make a hundred percent.
So these are the things that you really want to protect yourself against.
And my editor was like well, he wanna know for'cause he was getting scared.
How does ordinary person do this? How do they protect themselves against these
I advanced my answer is an ordinary person
Should focus on her or his business.
Dentists would focus on dentistry, not trading gold.
Hm.
You see, I mean my experience you see people whose business is not the finance.
And they think that's
They've gotta make money out of their checking account.
So what happens is they have so much scrutiny by their own business.
Say they're on a bakery, they know the suppliers, this guy pays this guy, they know all the risks.
And then they blindly put their money
And to something they
They have no idea what's going on.
Since the word of sucker, you don't want to say it's domain dependent. Some people are skeptical in one area, but don't transfer it to stock market.
It's the same thing. So there's something about the stock market, particularly with the the weakness of religion, that makes people believe
in stories of uh returns, but not believe in theological arguments that we've had for two thousand years. So
It's the same thing. So tell people, listen, what do you do? Oh I have a bakery. Focus on baking and then and use your money to preserve.
That's not your business.
So this is what you tell the pop and mom. You don't tell them how to do universal trade, you tell'em
They can't do it. Yes. The problem is.
Pretty good luck with
Startups I get the question, like how can I invest in
early stage startups, I'm like, don't. Yeah. Do not under any circumstances do that. It's like unless you're living in the middle of the switchbox and you're dedicating
Your time to that.
Do not do it. Unless you're a trader, don't trade. Yeah. Unless you're a baker, don't bake.
Unless you're a dynamite maker, okay, don't make dynamite and stuff like that. It's elementary.
Yeah.
This is Scott, the new book, Chaos Kings, How Wall Street Traders Make Billions in the New Age of Crisis.
Is available where all fine books can be found.
And you find you online, Scott Pattersonbooks.com on Twitter at
Patterson Scott.

And Nasim, where would you like people to engage with you if they engage with you? Or with your books, understanding that you
Have
begun work on these various
I suppose parts of
Your multi part SA.
At different points in time, is there a place where you would suggest people engage with your work first? I suppose it depends on their orientation.
I think uh fool by randomness is the one that uh people like.
the most, the black swan what they slight the most. And anti fragile is the one they misuse the most. Misuse. Misuse, yeah, because it's say, Oh yeah, the virus you get stronger
What doesn't kill you makes you stronger. I know, but what kills you doesn't make you stronger. I mean they're not getting it right. Like the the first thing to be fragile, to be anti fragile is first you have to eliminate fragilities.
You see?
Yeah, that that's the first rule. You tell a risk, you don't open it up. So I don't know, but I'd say food by randomness is a good start.
Or if your lawyer's cutting the game.
I have no idea because I'm not thinking in terms of my past books.
I'm thinking about the book I'm writing now.
Yeah, what are you working on now?
Well yeah, two things. Uh the technical insert to the second volume, which is all scientific papers around these points.
Yeah.
And I'm working now on a book
That is
Pretty much like structured, like an ancient Roman uh Latin tretis language tretis.
Okay, was questions and and stuff like that. And it's liberating to be able to write
Without having the narrative.
Just
Mm.
Point blank. And in it I cover all these points.
Question, what is convexity? And I've decided to do all of that in one book.
And it's gonna be called Pan Kipya.
For example, why the risk of an individual getting this doesn't translate into collective risk in the same way.
Right, the swimming pool versus stuff like that. And and also why generalized
A lot of it has to do with scalability.
People have the idea that we should have a virtuous
individuals to have a virtual society.
Typically if you force no.
There's a lot of green individuals can
Build a virtual society. That's the Adam Smith.
argument or as one mal branched.
So the idea of scalability, for example, is the most misunderstood thing.
Like a town is not a small village. I started the topic in antifrazal.
But how things scale differently.
So a a town is not a large village.
A country is not the same as a municipality.
And why, for example, you could be libertarian
At the national level.
And autocratic at the municipal level.
Say or communists in the kibbutz, but libertarianists say you could have a lot of these gradations, so things are more complicated.
Among these things I demand in it.
And then finally one idea that also the exposure was structured in it.
on the main difference between B S and non B S.
What I call verbalism.
Uh BS as in bullshit.
Yeah. Because a lot of scientific papers have VS and a lot of
Casual scenes.
Don't have the ass.
So I'm exploring all of these in a volume.
I may call it summa or principi, to give it an arrogant title.
Or summa or Pincipia uh in Kertorum or something I'm gonna say. I have to ask.
Or basically.
The rigidity of meaning. I learned that from arbitrage training. I learned a lot of things from training.
An arbitrary law of one price. Like if you combine things, you should they should have the same price here, Singapore
Or downtown, uptown.
combination that you should have no arbitrage. I can't really buy I used to do arbitrage. I started doing arbitrage is like I could buy an option with this, this converted to a cross thing, and end up with something cheaper than some other one I would short and then just get it. So it should not have a lower price serious meaning.
Whatever words you use always refers to the same thing.
That's what my criteria is really.
By the way, I cite you.
In my new book.
What you call retrospective vigot what you call bigotering.
Mm-hmm. Oh yeah. Okay, so in other words I have a so called retrospective military.
I have one section is on scalability and one section is on the passage of time, how we don't get time right. And in it I explain
Why
For example, it is improper.
To blame someone.
Pass in the visual retrospectively.
For values we have today but we don't have then.
You see, it's like for example, uh
Aristotle did not like uh
He was uh, you know, uh male chauvinist. I say, Okay, is it was it it is wrong. Yeah, we know now, but he didn't know.
You see, he didn't know.
It's just like saying, Okay, why don't we blame it for not using a computer?
Okay, but there's no computer at the time. So you gotta look at it in these terms. It should not flow back values backwards.
Yeah.
But effectively the Talmud, which I've been studying for a while, had a lot of uh things on it.
And don't tell me what what it has on it that it says that so for example they say Noah was virtuous for his day.
Someone pointed out to me in a talmod, Twitter is very helpful, but I I like these ancient texts to see how they they would judge their own.
Effectively when in eighteenth century.
They're different values than the fifteenth century.
And how did they judge him? And at the same time, people
The wise people know that hey they did not.
It was not part of the customs at the time.
How did you decide specifically on the Talmud?
I because that's not your no it's because I like uh Aramaic, which is closer to my native language, uh the Levantine dialect.
Aramaic.
And then started having interaction on Twitter with with people who are Talmudic scholars.
Based on the interest in the language. No, I put something in there. No, I'm my interest in language. I have interest in ancient languages more than interest in ideas.
But I'm poor with languages.

So it's not taken me anywhere except exploring text.
And I'm enjoying stuff. So you c have a collection of ancient wisdom in a Talmud and better in a Talmud.
That is very interesting because
This monumental work.
I'm just wondering uh
I guess in addition to or amongst the different
Sacred text or scriptures that you could
Study that stands out.
No, what stands out really is more like someone like Aquinas.
The summa through because written by one person.
Where is the Talmud is a
Concoction of opinion on opinions, all right. But I like the Talmud only because I had the privilege of understanding Semitic languages.
So I'm enjoying it more for linguistic stuff, just for the fun of it. And it's fun to read something and you understand. This is why I plus it is uh effectively a body of work that's quite monumental.
You know, that took centuries to build collection of scholars
Talking about scholars and discussing one another over time.
This is what what I like.
I like but Aquinas is took a topic.
And boom, put everything in it. All the questions and answers you can have in it.
The question themselves. So this is why why I'm much more impressed with Aquinas.
As an individual I can never imitate uh happiness. So I could be as a scholar
Like one of those who contributed to
That some of
You know, or one of small contributors not talk, that collective uh piece of work.
I'm jealous of your ability to engage with the Semitic languages.
And just be able to access
Some of the text.
In its original form. I'm very jealous of that.
No, I enjoy that. I don't do as well with Greek as I should, ancient Greek, I can do better with modern, but uh Latin is easier than than uh the Semitic language. But the grammar is more complicated than Aramaic.
Mm-hmm.
Mm.
Well, we could go down that rabbit hole maybe sound save that for the next round. I know we have food and booze to get to, but Scott, is there anything else you'd like to mention before we
Wrap up anything that maybe we didn't get to or anywhere you'd like to point people.
That I didn't mention.
Or the next book that you'd like to give a teaser for? Anything anything at all that you'd like to to mention before we wrap up. Really appreciate you taking the time, appreciate Nasine.
Taking the time.
I don't know about my next book. I mean I'm right now just
Completely immersed
Climate
world and last year the Biden administration passed the Inflation Reduction Act, which has nothing to do with inflation, but that thing is sending shock waves through
the climate technology world in ways that's just
It's kind of mind blowing.
And change the game.
For America, at least in in its attempt to catch up with
What China has started
More than ten years ago.
to develop these technologies, but it's gonna take a while.
But in my opinion it's it's pretty necessary to
Start doing that. Yeah, I find the entire space super fascinating and I know we were talking about the the ideas in the current books. We didn't allocate a lot of real estate to that particular topic, but you know, I was thinking about
What you were mentioning.
About climate change and
some of the challenges in engaging different parties and what I've found. I live in Texas, right?
A lot of people engaged in the hydrocarbon businesses and so on. And I've spent time with a lot of these people who are not stupid. There's some very smart people, but there are
You study the incentives and you see certain behaviors, you looked at the sort of incompetent interests, and where I have found
productive conversations to be had is if I avoid certain types of
language. So for instance if I don't mention climate change, but I say let's put aside
the question of whether humans are causing this or not, which is very painful for a lot of people to do.
But it's a great way to fight, you know. But if I'm like, look, let's put that aside and just look at extreme weather events.
And
Look at some of the
upside potential with some of these technologies and like where they could find incentives, like financial incentives outside of
Some of their current sandboxes.
I've had pretty good luck engaging people with that. I don't always have the
Compelling uh
opportunities to immediately present them necessarily, although there are all I mean quite a few out there. I've been working on some stories about climate
Technology in Appalachia.
So I've had a lot of conversations with Republican lawmakers in states like West Virginia.
About
Efforts to bring in renewable energy into the state.
And
You can have perfectly rational conversations.
With them and they love it.
And
You don't talk about
global warming or you know, climate change.
You talk about energy.
And you talk about how you know
Why would we not use this new form of energy
That's actually cheaper than everything else. Wind and solar
And they get that. They're like we're energy people. We understand it and they're embracing it.
Yeah, I think energy independence is
Sort of a
Yeah in competition with China. In competition. Well
I guess we can we can save that for a round two. But uh really appreciate the time from both of you.
Took a ton of notes. For people listening, also we'll have show notes linking to everything that we mentioned, as usual, at Tim.blog slash podcast. You'll be able to find
References and links to
certainly everything I have in my notes and a lot more that came up in conversation.
Any lists?
Parting words.
Gentlemen.
You're not gonna
Play was dinner this time, I'm paying.
Okay, agreed. No games. No games. I won't skulk off and surreptishly pay for anything. So uh on that note, off to dinner we go. And thank you very much, guys, and to everybody listening. Thanks for tuning in.
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