The Black Swan Challenge
Trader Mike is one of my daily reads. If you are serious about trading or investing, he should also be on your list. He is always a source of great ideas, information, and links. Today he has done a beautiful job of describing the key elements of the Amaranth blowup. To get a complete understanding you should follow the links in his post. (He has the tagging implemented nicely, and I am just trying to learn it. It is one thing to have information and another to convey it. In my classes, I had notecards and legal pads. I wrote things on a blackboard and challenged students — no PowerPoint, which had not been invented yet!! The old guy is trying to learn the new tagging tricks.)
On to today’s challenge:
Suppose that you had a trading strategy that would normally just break even, or perhaps even lose a little each month. That does not sound very good, does it? Now let’s further suppose that the strategy scored big on any "black swan" event. In short, it could be genuine portfolio insurance.
How should you present this to the world? Is anyone interested? How many managers have something like this as part of their portfolio?
(For those following the job applicant series, there is a scheduled applicant with a method like this, but circumstances and Mike’s great post have prompted me to advance the "challenge").