Jul

3

I found this to be one of the worst books I've ever read; I couldn't even finish it. It felt like a disjointed collection of blog posts, miscellaneous information, and ramblings about catastrophes. However, the topic of portfolio protection through options trading does have its merits. Here are a few observations:

Spitznagel's Track Record: While Universa has shown good results, its success could be attributed to the specific sequence of market events. It raises the question of how it would perform in a more stable, long-term market environment.

Leveraging Equity Risk: The argument that paying a 3% annual "fee" allows for taking on more equity risk is compelling. This is reflected in the fund’s CAGR relative to the S&P 500.

Options Trading During Crises: As someone not deeply versed in options, I'm curious about how traders manage to capitalize on positions at the peak of a crisis without losing the hedge if conditions worsen, thus maintaining their investment mandate.

Relationships with Dealers: Effective trading in size in options seems to require solid relationships with dealers.

Further Reading: I plan to revisit Safe Haven: Investing for Financial Storms to pinpoint other intriguing aspects.

Asindu Drileba responds:

On the contrary, I liked Chaos Kings. Scott Patterson is not a financier so I understand it when you read him expecting him to sound like a financier but he doesn't. He is just a story teller. You can tell this in his earlier book, The Quants. Which was not really about finance but just a story about financiers.

Reading "The Quants" for example reinforced/confirmed my suspicion on the relationship between gambling & financiers. I found it to be a very beautiful story. A beautiful beginning & a beautiful ending.

Quick overview of "The Quants":

- It's starts with this poker tournament organized amongst financiers.
- During the tournament, the author describes the characters traits of the financiers by outlining their attitude towards playing poker
- The book then talks about their character when there are in the market. (mostly when they are winning)
- The financial crash of 2007/08 humbles alot of the cocky characters. Previously humble financiers remained humble (also made money). (By cocky I mean hubris)
- Another poker tournament was held after the 07/08 crisis. And the attitudes financiers had towards each other actually changed.

To me, Chaos Kings is a continuation of The Quants. It has 3 central themes. 1st theme is the human story behind the characters.
- Didier Sornette & his love for motorcycles (whom some people in this thread think is useless)
- Yaneer Bar-Yam getting heart broken by famine in Ethiopia
- Mark Spitznagel's love for goats

2nd theme is about the disconnect between how "non chaos kings" think about markets & "chaos kings" think about markets.
- Mark Spitznagel's philosophy on risk for example is that risk management should not simply be to cap your down side, but to actually increase returns. But predicting crashes is impossible.
- Didier Sornette thinks some huge market disasters can be predicted & tactically mitigated.

3rd theme is seeing how people apply inter disciplinary research to markets.
- Didier Sornette uses techniques used to predict mechanical failure in rocket engines. And applys them to classifying the nature of bubbles in financial markets and when markets are likely to fail.
- Yaneer Bar-Yam has his background in modeling epidemics & pandemics (Ebola, COVID). And he uses the same tool box to predict the likelihood of crashes in the market. One of the tools described in the book is a statistical indicator described as "mimicry".

So, my take away is that Chaos Kings is not really an "investment book". It's just a story about how a certain group of financiers approach market crashes. I found it to be a great source of potential research topics.


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