Bleed or Blowup?
In a recent paper Nassim Nicholas Taleb outlined:
“In some strategies and life situations, it is said, one gambles dollars to win a succession of pennies. In others one risks a succession of pennies to win dollars. While one would think that the second category would be more appealing to investors and economic agents, we have an overwhelming evidence of the popularity of the first. A popular illustration of such asymmetry in returns is evident in the story of the Long Term Capital Management hedge fund. The fund derived steady returns over a dozen quarters then lost all of them in addition to almost all its capital in a single observation - only for the main principals to restart a new, albeit milder, version of the strategy. Is there a systematic bias in favor of such return profiles?”
Nassim Nicholas Taleb
