The Black Swan Strategy --- A Strong Bottom Line

The term "black swan event" has been used to describe events that are unexpected and can have a significant impact. According to the Johns Hopkins University outbreak statistics, the cumulative number of confirmed cases worldwide** as of this writing. More than 7 million cases have been reported, including more than 400,000 cumulative deaths. Despite the outbreak of the disease in China in January this year, which caused the A-share market to open almost 8% lower across the board on the first trading day after the Chinese New Year, the new crown The impact of the epidemic on global capital markets began in March this year with the outbreak in the United States, the world's financial center, and US stocks The market experienced four meltdowns in March of this year, which drove a series of global stock market crashes. This happened so suddenly that no one could have predicted the timing of the pandemic, so the neo-crown outbreak was capitalized on Consider it a textbook "black swan event".

A Black Swan strategy that made over 3600% of its profits.

Nassim Nicholas Taleb was the first to apply the term "black swan" to the financial markets, with his book The Black Swan. The Black Swan strategy, which he himself believes in, has been sold all over the world and has been a big hit during this epidemic. Taleb's own experience could have been written in a book; he was once a member of a prominent Lebanese family, but war has torn his family apart. With nothing to lose, he relied on his deep knowledge of the capital markets to achieve financial success by shorting the market in the 1987 crash. Freedom.

According to Bloomberg data, in this stock market crash caused by the new crown epidemic, Taleb's big brother, Mark Spiznagel, owns Universa Investment Fund makes 36 times wildly, over 41 times this year's Q1 earnings, with performance hanging by a thread Almost all global funds. Mark's Universa Investments has an initial asset base of $300 million, a large portion of which is The funding came from his teacher, Taleb.

Unlike Warren Buffett, who insists on value investing, Taleb's strategy is more "anti-human". Taleb called his own strategy bleeding strategy, every day their traders need to buy a very large number of cheap short call options ( (PUT), and then watch those options slowly go to waste in a bull market. According to Forbes magazine, Mark makes dozens of trades every day, losing money on about 95 out of every 100 trades when When the black swan event occurs, you can make a big profit.

You may ask, if you invest like this every day, won't you lose all your money? Not really, because they will invest 80-90% of their money in almost zero-risk targets (e.g., short-term Treasuries, etc.) that will 10-20% of the money was invested in high risk investments (short options). So much so that when the black swans came, most of the assets were preserved and a small percentage made huge gains.

What the Black Swan strategy means for the average investor

Mark has stressed many times that this approach is not for everyone. Buying doomsday shorting options every day will deplete our capital over time, so this strategy is difficult for the average investor to make They live until the dawn and are not suitable for long-term holding. But from a portfolio management standpoint, putting a small position into a black swan strategy is a great way to protect your portfolio from A good choice for a black swan event washout.

Economist Eugene Fama has pointed out that if past stock price movements up and down were normally distributed, then only once in 7,000 years would there be a The fact is that the stock market rallies by 5 standard deviations every three to four years. Based on the "spikes and thick tails" effect, Taleb believes that the probability of a "black swan" event is much higher than expected, and therefore the cost is minimal. Betting on a "black swan" event to generate high returns is a good idea.

Shorting instruments is complicated and difficult to calculate, making it difficult for the average person to execute a black swan strategy on their own.

Legg Mason Equity Volatility Strategies Fund

The Legg Mason Equity Volatility Strategy Fund uses the volatility strategy from the Black Swan strategy, which is actively managed by the manager, to purchase the S&P 500 Put options (Put) with the European Stoxx50 stock index and dynamically swap positions in the event of a market crash and a sharp increase in volatility Significant gains can be made. The fund has $14 million in assets under management and is managed by two fund managers, Simon Aninat Nearly 15 years of alternative investment experience with nearly $10 billion in assets under management; Joran Chalal in 2019 He joined to manage this fund in April and holds graduate and undergraduate degrees in computer science and financial mathematics.

The following are the two main investment highlights of the fund.

1. Bear catcher

The fund was up 33% in the March crash, and in 2018 the U.S. stock market was up all year due to the international trade dispute The gains exceeded 5% even during severe volatility. When the stock market rallied and the panic index came down, the Fund put the gains into safer assets by switching positions to avoid the subsequent Biggest pullback.

2. More robust performance than volatility index products.

Unlike products that track volatility indexes (the underlying is Volatility Index Futures (VIX Futures)), this fund Direct purchase of put options on the index. At the same time, the fund uses a similar barbell strategy to Taleb and Mark in that it allocates about 80% of its position to safe assets and the remaining A small portion of the position goes to high risk assets to get a small amount of money. We can look at the Fund's holdings