Chaos Kings, Scott Patterson
(back to books)
- Substrat: actively manage your exposure to ruin problems
- ruin problem: over time, exposure to tail events leads to extinction
- precautionary principle: with ruin problems, ignore cost-benefit analysis and reduce risk (or exposure to risk)
- how to know which is which: are there cascades that spread harm across entities?
- what matters isn't risk, but one's exposure to it
- Universa: explosive crash returns (>20% inter-month drop)
- underlying believe: 1) drawdowns matter more than wins (panic early, sell immediately),
2) financial markets are tied to continuous central bank interventions which amplify crisis risk
- far out-of-the-money 1-month S&P500 put (or VIX call) options
- excellence in pricing these options is competitive advantage
- sometimes they sold options (puts & calls) with strike prices close to underlying stock value (because they had superior pricing)
- 1.5% management fee on AUM + 20% performance fee on gains
- combine tremendous patience with overwhelming aggression
- narrative fallacy: we simplify and believe the world is less random than it is
- gray swan characteristics: exponential growth with positive feedback loop hurdles towards phase transition
- triggered civilisational collapse in the past: excessive complexity, war plagues, environmental havoc
- FAO food index > 210 indicates high risk of violent outbreaks
- Freedom House's global index of worldwide democracy fell for the 16th year in 2021.
- books and papers: