Taleb on Bloomberg Discussing the Importance of Hedging

so people have drawn parallels between what's happening financial markets today the amount of risk-taking the nature of the risk-taking the reach for yield the flood of foreign capital yes into particularly u.s. financial assets drawing a parallel between that and what happened before the financial crisis yes now the conditions look very similar the could well we have a lot of a lot of debt but that has shifted from private to public yes which is worse because public that doesn't go away private debt you can always turn it into equity or punish you can restructure yes I'm a private data generated not by people who responsible for the debt but there is more but there's still an awful lot of debt on corporate balance sheets everything they are their mouth growing but I'm worried of a public that I my my idea is I'd rather be very poor at the timing and good at the hedging all right so you want you want at your business that's my business but that's also that you know my philosophy in life okay you don't want to try to depend on specific predictions of catalysts for that crisis it can happen in an hour or it may take years all right but definitely we are in a precarious situation I don't know what that meant functioning plane will crash but it will eventually crash so you need some kind of protection from tail hedging that is done intelligently not like foolishly or stay out of the financial markets which what we recommend people now okay so we're actually getting down to this advice part of the conversation so if you're a professional investor and you want to take risk you want exposure you need to have you believe that one needs to have tail risk protection and they're not all insurance if you know how to do it if you don't know how to do it step by it or buy it you can buy it you can know it's not easy because a lot of people think they deliver it and they run out of money quickly or something okay it is very delicate situation I recommend that individuals new market pencils down cancels down unless you know how to hedge alright and and new people do and few people do because at this stage of the game you would recommend that people have no exposure to financial assets listen you're not obligated to expose your financial assets of course not it's not proven well I don't want to save for retirement I understand that you want to save for retirement that's not prudent you know because you got to look at both sides of story you man that was no money what's the line it's always no location then if you're at the moment if you're trying to save on cash what I'm saying is that I engage in financial markets if and only if I have tail has protection and it's done right otherwise don't engage in financial markets even in Treasuries of know especially Treasury bonds interest rates the upside from interest you know from from from from holding a bomb that the upside is limited and the downside is so at what point in the investment cycle does it make sense for people individuals to hold financial I mean I would say I would I'd rather have very low return of course to no return then have a huge negative return well sure catastrophic loss you keep nobody could have that covered exactly exactly a lot of people wish in 2007 and 2008 early thousand which they had no investments but what about these poor public pension funds with defined benefits that have to generate you know actually a seven or eight percent return every year tail risk hedging is necessary for these people so they don't because the problem is if you if you have a crisis then then you have to generate much higher return later so you need to be able to have a higher exposure to risky assets coupled with more tail risk protection so in other words you need to be able to generate something in the double digits just survived otherwise if you have the point that we've looked at markets tend to happen is that markets go up and then cry so crash you walk but net net they're good okay but to be able to sustain a crash to live through sizably you could probably take more risk if you have the right protection or the right hedging as opposed to being conservative and just trying to generate exactly in the middle doesn't work well you should have a portion of your portfolio in a bar and exactly higher risk but then have good protection against that high risk done properly it's not a lot of people think they can call a broker buy puts and it's done it's much harder than that

Channel: IPSStrategicCapital

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Keywords: Hedging, the Importance of Hedging, Tail Risk Hedging, Tail Risk Protection, Financial Risk Managment, Financial Crisis, Public Debt Crisis, Nassim Nicholas Taleb, Public Debt vs Private Debt, Public Debt, Private Debt, Taleb on Bloomberg Discussing the Importance of Hedging, Bloomberg Discussing the Importance of Hedging, bloomberg, the importance of hedging, bloomberg live, bloomberg industry group, bloomberg invest summit, tail risk hedging, IPSStrategicCapital

Id: ZX3SgwSO0RQ

Length: 4min 33sec (273 seconds)

Published: Mon Aug 05 2019