fuchsbau

Safe Haven, Mark Spitznagel

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• Substrat: payoffs - not predictions - are relevant
  • "Great Pirates think and live comprehensively, in wholes, and they master the entire gameboard (...)."
  • focus on activities with remove payoff and no feedback that are ignored by most
  • geometric avg. > arithmetic avg. (geometr. goes to zero with single zero)
  • "the key is efficiency"
• safe haven: place of refuge for when things go bad (safety from risk)
  • goal: increase geometric outcome (in every percentile path, esp. median)
  • lowering risk: raise 5th percentile ending wealth
  • essential safe haven features may be emergent and transient
• safe haven payoffs
  • store-of-value payoff: fixed (e.g. annuity); low correlation/sensitivity to systematic exposure
  • alpha payoff: negative correlation/sensitivity to systematic exposure
  • insurance payoff: extreme case of alpha payoff (high crash payoff per unit of cost)
  • The more explosive the crash payoff, the smaller the safe haven allocation needed.
• ergodicity: arithmetic average = geometric average across sample space and time
• diversification is "diworsification": likely cost-ineffective risk mitigation (you get less risk, no matter the cost)