Published on seeking alpha.com, by Nassim Nicholas Taleb, November 09, 2008.
Last month as the Dow dropped 20% and portfolios were battered, one investor was prepared. Nassim Nicholas Taleb, who founded the risk management firm Universa Investments, watched his portfolio soar 65% and 115%.
If Taleb’s name sounds familiar, that’s because his book The Black Swan: The Impact of the Highly Improbable spent 17 weeks on the New York Times Bestseller list.
Universa was launched in December 2007 with $300 million in assets. It is now estimated to be worth close to $2 billion. Technically Taleb is an “external advisor” to Universa, which is managed and owned by former professional trader Mark Spitznagel.
How did Universa Investments gain 115% in the vortex of the worst bear market in two decades?
Did they look into a crystal ball and see the credit crisis playing out as it has. Did they employ a room full of PhD chart wizards? The answer is “no” …
… In other words, Greenspan failed to factor in the likelihood and impact of a rare event. In this case, it was a meltdown in real estate that not only brought down real estate values and REIT share prices, but the entire global economy, as well.
Taleb’s strategy isn’t for everyone. It takes patience to wait around for a rare event. However, when that event happens it can be very profitable.
The “get rich quick” bull market is over. It’s a different ball game now. There is a historically proven, conservative investing strategy that will help you to rebuild your portfolio. Taleb’s big October win reminds us that successful investors seldom follow the herd. (full text).