Latest news with #NassimTaleb
Bloomberg
28-05-2025
- Business
- Bloomberg
The Fallacy of Market Narratives
To get John Authers' newsletter delivered directly to your inbox, sign up here. Humans think in terms of narratives. We're hot-wired to do so; condense something complicated into a story, and we understand it more easily. That raises the risk of over-simplification and narrative fallacy — a notion from Nassim Taleb — in which we grab hold of a version of events and allow it to color incoming data.
Daily Mail
20-05-2025
- Business
- Daily Mail
Want to pick shares? How to stop being a gambler and be a craftsman earning reliable profits
Ed Croft, the founder and chief executive of Stockopedia, explains how to avoid being the kind of share-picker who takes punts on stocks that often fail and become an investor who uses craft to earn reliable returns instead. If you're anything like me, you probably didn't start investing with a perfectly thought through plan. You may have looked at fund managers and thought you could do better. Maybe you invested in funds, but were disappointed by the results. You wanted more control, higher returns, a bit more risk. So you started picking shares. And that's where the trouble begins. Let me talk you through the four stages of share-picking and how to go from being a Gambler to a Craftsman. Stage 1: The Gambler – betting on a big idea This is how many of us start. We come across a share tip, from a broker or a bulletin board, maybe an overconfident YouTuber. We find a convincing idea. We want in. Sometimes it works, but often the theme has already played out by the time you buy in. You don't even know you're late. This isn't investing. It's gambling on hope, which too often ends with a loss – yes of capital, but also of confidence, which can be hard to rebuild. Story stocks vs the statistics… For some reason, companies that are pre-profit, or pre-revenue are even easier to project narratives onto. At Stockopedia, we've tracked the performance of blue-sky 'story stocks' that so often dominate attention. Stocks like Sirius Minerals – that tens of thousands lost money in. And we found roughly three-quarters of them lose money in a typical year. We all want to believe our favourite share will be a lottery win, but the stats just don't back it up. Only 5 per cent of pre-profit story stocks end up doubling or tripling in a year. Stage 2: The Follower – trusting authority After a few bets fail, you smarten up. You start following people who actually know what they're doing. People you respect. Premium content. Expert Newsletters. Communities of proven investors. This is definitely a step up. The very best investing insights are often shared by real investors, investing their own money. But even here, there are traps. Because following others isn't the same as doing analysis. You risk just buying the story. We are all hard-wired to believe in stories. They are how we make sense of the world. We seek story arcs in our investments – a viable turnaround plan, a heroic new CEO, a market that must be disrupted. But Nassim Taleb warned of the 'narrative fallacy' in Fooled by Randomness – we see patterns where they really don't exist, stories where there's only noise. So if you find yourself, or the experts you follow, projecting a Hollywood ending onto your favourite share, while ignoring the red flags – buyer beware. It really can pay to be a sceptic. Ready to put this strategy to the test? Try Stockopedia free for 14 days and get 25% off your first subscription as a This Is Money reader Stage 3: The Researcher – digging deeper So now you take your investing seriously. You learn to read financial statements. You source broker research and annual reports. You study investing books and create spreadsheets. You are doing the real work now. You feel smarter. But even now, there's a catch – doing more research doesn't guarantee better results. There's a study from 1973 by Paul Slovic. He asked horse racing experts to predict winners when given increasing amounts of data. At up to five data points on each horse, their accuracy improved. Beyond that? Their confidence kept increasing, but their accuracy completely flatlined. It's a hard to swallow truth – more research makes us more confident, not more correct. So if you find yourself doing hours of research and becoming more and more convinced in your convictions – just remember that confirmation bias can be really expensive. I've been there. In 2008, just before the financial crisis, I had 50 per cent of my portfolio in a single AIM-listed biometrics stock. I'd done the work: bought the product, built the DCF, met the CEO. I 'knew' it would multibag. Just give me ten minutes with my younger self and I'll save him hundreds of thousands of pounds. Stage 4: The Craftsman – turning insights into rules So when you've done your fair share of gambling, following, and over-researching – you may reach a point where you stop asking 'what do I think about this stock?' and start asking 'what really works in the market?' It's a subtle shift, but it's everything. Most of the great investors made this shift. Graham. Buffett. Slater. O'Shaughnessy. They didn't just gather information – they defined investment criteria based on the evidence of what really works. Because when you start researching what really works – across all markets in history – there are only a few core return drivers that consistently pay off. ● Quality – good, profitable stocks tend to outperform unprofitable, junk. ● Value – cheap stocks (versus earnings or assets) tend to outperform expensive stocks. ● Momentum – shares with positive price and earnings trends tend to outperform. Not every stock with these characteristics succeeds, but on average, investing in shares with these key characteristics shifts the odds in your favour. The study below is by Fama & French – Fama won the Nobel Prize for validating these insights. Understanding this is where the shift happens. The Craftsman moves from stock-picking based on opinion, to rule-building based on evidence. These three characteristics, which we call QVM, are measurable for every share. And when something can be measured, then rules, criteria and checklists can be built on them. They can be the basis of a sound, repeatable process. Even Charlie Munger, Warren Buffett's partner, and one of the wealthiest stock market researchers that ever lived once said: 'No wise pilot, no matter how great his talent and experience, fails to use his checklist.' Because what sets the best investors apart isn't how much they know about their investments – it's how they turn their knowledge of what really works into a repeatable process. What's next? This first article is really about recognising the journey that many of us investors go on – from gambler to follower to researcher to craftsman. In the next article of this four-article series, I'll show you how to start turning the QVM return drivers into practical rules you can apply to improve your investing. This article is part of Stockopedia's The Smart Money Playbook series. As a special offer This is Money readers can get 25 per cent off a Stockopedia membership.
Hans India
12-05-2025
- Business
- Hans India
Don't let uncertainty to drive impulsive decisions
While our fundamental understanding of risk boils down to the outcome or the consequences of outcome of an event, the very uncertainty of an even happening itself is a risk. We, humans, always tend to seek certainty in any outcome. Our brains are prediction machines—constantly trying to reduce ambiguity by forming expectations, even when the future is inherently unpredictable. This is the reason why we like to make predictions into the future outcomes. Rory Sutherland illustrates best of our aversion to uncertainty in his book, 'Alchemy'. If one were to take a flight to Frankfurt which departure board would you prefer to see? Option1: BA123 – Frankfurt – Delayed Option2: BA123 – Frankfurt – Delayed 70 min. Logically, neither scenario is ideal—your flight is late in both cases. Yet, most people would prefer Option 2. Why? Because while a 70-minute delay is frustrating, it provides a clear expectation. The first option, however, leaves you in limbo—How long will I wait? Will the flight be canceled? Should I stay or look for alternatives? The uncertainty amplifies stress, making the experience far worse than a defined (even if longer) delay. Though, the delay in option 2 is frustrating, it is better than optio1 because it reduces provides the certainty in the delay. While in the option1, the uncertainty is intensified as we don't know when the flight would take off, if at all, which could a source of considerable psychological pain. Analysts publish price targets, economists predict recessions, and traders rely on technical charts - not because these methods guarantee accuracy, but because they provide a semblance of certainty. This is how we develop the illusion of control. This is an instinctive coping mechanism that has remained all through our evolution as humans. When faced with randomness, our brains impose narratives. If the RBI cuts rates, so stocks will rally If the war gets escalated, the stocks will crash These mental models help us tolerate uncertainty, even when reality is far messier. As Nassim Taleb argues in Fooled by Randomness, humans are prone to overestimating causality in chaotic systems. We'd rather believe in a flawed prediction than accept that some outcomes are simply unknowable. Business that understands this physiological need thrive by selling certainty (or illusion of it): e-commerce delivery trackers don't speed up packages but they ease the 'where's my order? ' anxiety. Restaurant wait times displays make a 45-min delay feel more manageable than an ambiguous 'we'll call you'. Pregnancy tests that show 'weeks since conception' provide more information than a simple positive/negative result, even if it doesn't change the outcome. In each case, the value isn't just in the service itself but in the reduction of uncertainty. While we naturally seek certainty, wisdom lies in recognizing it's limits. In investing, this means: Accepting probabilism: instead of predicting to know the exact outcome, focus on ranges of possibilities. Preparing for multiple scenarios: plan for different futures rather than betting on one 'certain' path. Managing emotions: the most critical aspect. Acknowledge that discomfort with uncertainty is normal, but don't let it drive impulsive decisions. The future will always be uncertain. The best we can do is build resilience not by eliminating unpredictability, but by learning to navigate it without false comforts. As Sutherland's examples show, sometimes the biggest relief isn't a better outcome, but simply knowing what to expect. (The author is a partner at 'Wealocity Analytics', a Sebi-Registered Research Analyst and could be reached at [email protected])
Yahoo
28-01-2025
- Business
- Yahoo
Nvidia's stock rout is just the beginning of more pullbacks that could be multiple times larger, 'Black Swan' author says
Nvidia's 17% sell-off could be the beginning of a pullback that's two or three times larger, Nassim Taleb says. The "Black Swan" author said the DeepSeek-fueled market rout exposed how fragile the market is. Nvidia's loss was relatively small considering the stock's steep climb in recent years, he added. Nvidia's double-digit decline could be just a taste of what's to come for investors, with another pullback multiple times as large in the cards, "Black Swan" author Nassim Taleb said. Taleb, an advisorr at hedge fund Universa Investments, cautioned that Nvidia's rout, which wiped out almost $600 billion from the chip giant's market cap, could be followed by further large declines in the stock. "That's absolutely in line with what you can expect. I mean, think about it. Something goes from 1 to 10, goes back to 9, people freak out," Taleb said, speaking to Bloomberg on Tuesday. Amid a broader sell-off fueled by DeepSeek on Monday, Nvidia stock shed 17% and erased $589 billion from its market cap for the worst-ever single-day loss of value in history. The total market loss exceeded $1 trillion at the end of Monday's session. But that decline is relatively minor considering the stock's meteoric rise in recent years, Taleb said, characterizing Monday's sell-off as "just a small setback." "You're building everything on the hope that people will use your chip, will use chips, and the investment will not come from software or someone figuring out a better idea or some other method, which is what happened. It's a hint of what is to come," Taleb told Bloomberg. Nvidia's pullback illustrated how fragile markets are, Taleb said. He pointed to how heavily investors were concentrated in a small corner of the market; Nvidia, Apple, Amazon, Alphabet, and Broadcom accounted for nearly half of all gains in the S&P 500 in 2024, according to an analysis from Goldman Sachs. People also tend to underestimate how volatile tech stocks can be in a single trading day, Taleb said, referring to stocks in the sector as "gray swans." "This is the beginning," Taleb added. "Beginning of an adjustment of people to reality, because now they realize, now, it's no longer flawless. You have a small little chip on the glass. Now they realize, oh, it's not infallible. Maybe I should revise." DeepSeek, the Chinese startup whose AI model rivals US peers despite being trained with older generation chip tech, has fueled concerns over the artificial intelligence trade in the US. In particular, the sell-off revealed concerns over two key risks that investors have mostly overlooked until now — stretched valuations and heavy AI spending by large-cap US tech firms. Mark Spitznagel, the chief investment officer of Universa Investments, the hedge fund Taleb advises, has compared the run-up in tech stocks in recent years to the dot-com bubble, adding that the market now looks to be in the "greatest bubble in human history." Read the original article on Business Insider Sign in to access your portfolio
Yahoo
28-01-2025
- Business
- Yahoo
Nassim Taleb Says Nvidia's Selloff Is 'Just the Beginning' of AI Stock Declines
Nvidia (NASDAQ:NVDA)'s sharp decline on Monday is just the beginning of more losses to come, according to Nassim Taleb, the author of The Black Swan and a well-known risk analyst. Warning! GuruFocus has detected 3 Warning Signs with NVDA. Speaking at Miami Hedge Fund Week, Taleb told Bloomberg News that Nvidia could face drops two to three times the size of Monday's 17% decline, which wiped out $589 billion in market value. This is the beginning... of an adjustment of people to reality, Taleb said, adding that Nvidia's stock performance is no longer flawless and is showing early cracks. The selloff came as investors worried that top U.S. tech stocks may be overvalued, particularly in AI, following the launch of Chinese AI startup DeepSeek's R1 LLM model, which is reportedly far cheaper to train than U.S. models. Taleb compared the situation to the 1999 dot-com bubble, saying that early internet investors bet on AltaVistaonly for Google (NASDAQ:GOOG) (NASDAQ:GOOGL) to emerge later and dominate. Nvidia is down more than 16% over the past five days and over 11.5% over the past month, raising concerns about AI stock valuations. This article first appeared on GuruFocus.
