My Review* of Scott Patterson's "Chaos Kings: How Wall Street Traders...................."

 Tail Riders

 Wall Street Journal reporter Scott Patterson has written a book celebrating the exploits of hedge funders Nassim Taleb of black swan fame, and Mark Spitznagel whose successful bets on high impact low probability events made them a fortune. Their strategy is simple and requires a great deal of patience and a high tolerance for pain in that they are continuously long deep out-of-the money put options on the major stock market indices. Most of the time the options expire worthless, but when disaster strikes their value explodes and those monster gains overwhelm the small ongoing losses. In essence Taleb and Spitznagel take positions on the left tail of the probability distribution for stock market returns.

 Although they don’t know when a catastrophe on the order of the 2008 financial crisis or the 2020 Covid collapse would occur, when it does happen, they are positioned for it. Their sales pitch is that they are selling portfolio insurance for a modest premium and that they allow for much higher equity exposures than otherwise would be prudent. Their model is 97% equities and a 3% position in their fund.

 When I was a partner in a hedge fund over two decades ago, we made a similar bet on catastrophe by buying out of the money call options on Eurodollar futures. It was a bet that interest rates would fall. When Long Term Capital Management failed in September 1998 the price of the options increased tenfold.

 Just to note, I previously reviewed Spitznagel’s “The Dao of Capital” and Taleb’s “Skin in the Game.”(See:  Shulmaven: My Amazon Review of Mark Spitznagel's, "The Dao of Capital: Austrian Investing in a Distorted World" and  Shulmaven: My Amazon Review of Nassim Nicholas Taleb's "Skin in the Game: Hidden Asymmetries in Daily Life"  )   Patterson is a skilled writer so he tells their stories better than they can. However, I would quibble with Patterson in that he wanders off into tangents that are really extraneous to the book’s main points.

* Amazon has yet to post this review. Amazon just posted this AM with  

 Tail Riders (amazon.com)