Nassim Taleb on Living a Good Life in an Age of Volatility

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1:55Hello, OddLots listeners. You are listening to another episode that was recorded live in New York City at our event on June 26th. This time it's with the one and only Nassim Nicholas Taleb, distinguished scientist and advisor at Universa Investments. Yep. We talked to him about how to live a good life in a time of immense volatility. Take a listen. Nassim, what's your definition of a good life? What should we be aiming for? And I mean, a lot of people think that we're programmed to be happy and stuff like that. In fact, we're programmed to feel useful. That's a good life. Or, I mean, you don't have to be a martyr to feel useful.

2:38As a matter of fact, martyrs go too far. And if you look at their deaths, typically in history, you realize they could have waited a decade. And the problem was assault itself by itself, right? So think of all the wars. And hey, like the Vietnam War, it took care of itself. So whatever. So let's forget about martyrdom, except, of course, in narrow cases where you save someone. So the idea is to be useful to others. And then the idea is to share your mistakes as you grow in age, to share your mistakes with society so they can build on it. That's my idea of a good life. For a lot of people, good life is hedonic in the sense that they have a chef flown in from Europe to eat some complicated food that our friend here would not approve, really.

3:32Non-steaks, complicated things with long names. And so that's a hedonic approach to things. Mine is you feel useful. So whether you have a family and you're providing for them, or if a lot of people don't have a family yet or may not have a family, because in the past, most people didn't have a family. A lot of people were orphans. A lot of people had children who didn't survive. So the idea is to be useful to the community in general. So we talked about this in the market context at the very beginning. But does, you know, I feel this pull to basically always look at my phone to monitor the latest headlines.

4:16Sometimes I don't think I'm the best parent because I'm looking at my phone when I should be with my family, as you mentioned. How do we be useful in a time when we're just being bombarded with events beyond our control? Okay, yeah, but we're better off than we were 40 years, 50 years ago before many were born, perhaps even you, right? Yeah. So you don't realize that we spent about a century in front of a TV set or reading papers where you're on a receiving end but not providing anything in return. So it was a centralized information era that started with modernity. And you realize you should see the families eating their dinner in front of the TV set.

5:08Basically, you're receiving information. whereas organically in the past the way we dealt with information was by trading it it's like Twitter you give information, you receive information so you go to the barber someone gives you information and then you go to buy fish you give the fishmonger information and then rumors start going and now we're close to that period because you're not just receiving stuff you're also tweeting although your spouse I'm sure tells you not to tweet Not thrilled. That's correct. Yeah, that's correct. It is true when we're trying to get Joe's attention, we send a DM.

5:46Exactly. Because he doesn't respond to anything else. So I'm sure he's tweeting. So you're feeling you're not just receiving noise, but you create noise. So I'm contributing. I'm being useful by contributing to the noise. Thank you. Very validating. Wait, but do you personally enjoy being on Twitter? Because I read some of your tweets and, you know, sometimes you seem a little angry. No. Just a little. If I were tweeting now in front of all of you, the tweet would look angry, but my face...

6:14Wait, actually... I'm often giggling when I'm tweeting, all right? I'm often giggling. So the idea is to separate your public persona from your private life. By the way, before we forget, before you leave tonight, someone DM'd me and said, can you please ask Nassim to unblock me on Twitter? I get these all the time. That's probably the most frequent message. So remind me before you leave. It seemed like a nice guy. They all say, oh, sorry, I had a drink or I don't know. Wait, we should actually ask. Typically because of Bitcoin, because I chain block. When you have a smear campaign, you chain block.

6:50So the friends, if someone bullies you or you block, they're friends as well. Yeah, that's right. It was possible at the time. Wait, how many people here have been personally blocked by Nassim Taleb? Not that many. That's not nothing. Not that many. It's a small number. It's not none, though. No, no, no. A random room in New York. I stopped a couple of years ago from using the chain blocker. Yeah. One, because it had a lot of type 2 error. They're the false positives. and the other reason is because when Elon took Twitter he banned these bots. Yeah. So they can't operate anymore. You got to do it manually.

7:36Like the third party apps that you can use. Yeah, yeah, exactly. They could use to block someone, their friends, the friends of their friends, the friends of friends of their friends and all of that. So.

7:54Thank you.

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9:49Let me compose a tweet that maybe I'll post is for Trump one. Okay. Trump one was taken literally by his enemies, by his and metaphorically by his friends. Okay. Trump two is taken metaphorically by his enemies and literally by his friends. So whatever he's saying now, he's pretty much doing. Did you believe that he was going to start these tariffs? They make no sense. I mean, it makes sense to get elected in Pennsylvania, but, I mean, it's not the kind of thing you do, really. And it turned out he meant it. It was not just, you know, a vague, it's really an ordinary metaphor. It was real. He wants tariffs.

10:39So maybe he wants to destroy the American economy. Maybe that's his wish, and you could probably put a dent. And yet, but it's not work. Where the stock market's at all-time high. Sorry? The stock market is at all-time high. First of all, you have to separate the health of American companies from the income of the American who went to a stop and shop or what's the thing in your area? Not Whole Foods. You guys go to Whole Foods, but normal people go to Costco or whatever. Then you look at your bill, right? and the bill went up practically for everything and their income did not and tax breaks to come are not going to help those who don't shop at Whole Foods because the poor people don't pay taxes anyway so they're not going to get a break from that.

11:27So the idea is there's a lunacy in these tariffs. I can understand that we need to protect pharma. We have some strategic interest in this. Okay, you protect the industry. You want to make sure you don't depend on China for other things. But it's a lunacy to try to switch with 4 % unemployment in America, plus or minus, from high margin. I mean, you guys are all hard margin, all right? To low margin, all right? The high margin audience. Yeah, we have a high margin audience. To low margin, all right, occupations. Right. So now we're going to make socks. Can you imagine the high margin? So making films, you're going to make socks.

12:13And then also misperception is the whole process of a lot of things in basic, you know, trade accounting. Like they say, oh, they're ripping us off. I mean, I'm a dentist, right? And I go buy my bread. It's ripping me off, right? I should make my own bread. And then the baker should be a dentist. So the whole idea doesn't stand on it. And plus they have, you know someone is not very intelligent or not very skilled, and you can detect that it's like arbitrages. You guys are from financial audience, and we call that trading against themselves. They do a series of trades that end up closing a loop in circular but with a loss.

13:01They used to call that Texas trades, but I think that the state of Texas has been unfairly defamed. Yeah, Texas trades in general. One of them is Texas hedge, right? So, for example, they have tariffs on components that you would use to build a computer in your basement in New York. But if you bought an Apple product, then there's no tariff, although everything is made overseas, manufacturers. So this is an inconsistency. So there are plenty like that. And there's also, what's his name, the Secretary of Commerce. Lutnant. Yeah, he definitely, someone should hire him for comedy because he was saying, first of all, he doesn't, the inconsistency.

13:58He didn't realize, he said, oh, we're going to raise so much money from tariffs. And then when you ask him, you mean that the economy will not adapt to your tariffs by replacement? He didn't think about it. And he wants us to produce, to pay tariffs on bananas, so we're going to have substitutes. Or he spoke about wine. He said, oh, people will buy American wine. But what happens if the price of French wine goes up? Okay. There's something called substitution. I don't know if people do that. In Europe, they teach high school economics. I mean, for children where they teach them substitution, right?

14:36So it's elementary. I mean, I'm saying that Trump should have hired, if he could find, people who have some skills. All right. I can't wait to develop my skills growing my own bananas. Banana autarky. Autarky. Sorry, I can't talk tonight. Okay. I was going to ask. You always preach skin in the game. Yes. unlike us journalists. So I got to ask, you're still an advisor to Universa. What's been going on there? What are your returns like? Give us all the numbers. Okay, no, so this is not the place to discuss numbers. You won't get, right? But you can get a general approach and philosophy that I have now to describe in a format, a compressed format of what we do and how we do it, we can safely say that, as usual, whatever we're doing worked.

15:36In a sense that the idea is that you've got to look at the return of that hedge. You've got to return of the portfolio that was hedged. Because sort of like when you have an insurance on your house, All right? You look at the package, house plus insurance. You don't look at insurance as a tradable thing. Today I'm not going to have insurance. Tomorrow I'll have. Or how is that paying off? You look at the package, okay? Insurance allows you to buy a bigger house because you know your total risk is lower in case of stuff like that. So it's the same situation. And the stock market rallied, which means that not only did the hedge do okay, but it wasn't needed.

16:23So you're like making money on your insurance. So net, net, that story continued. And we've been doing it now for, time flies. We're in 2025. 25 minus, oh, it's a lot, right? So we've been doing it for 18 years, 18, 19 years, directly with Universal and before, of course, an iteration before. And it is, it's the same story. We didn't change strategy for a second, and we will not change strategy. So basically, that's what we do is the same thing. It's just that it's getting bigger. That's it. Well, wait. There are a lot more volatility events nowadays. Do you not adapt to that at all or take that into account?

17:08Okay, so let me tell you, if you look net-net, first of all, I don't look at volatility as volatility. Okay. In my technical work, and Universal doesn't look at volatility. You look at, for example, you can have a tail event, or you can have regular volatility. So a lot of people are overhauled by regular volatility. And typically what they call regular volatility, I learned the linguistics of that business, is when the market goes down. In the old days when they're losing money, they would say, oh, the markets are volatile. Volatile doesn't mean it's going up. Volatile is not an absolute mean deviation.

17:45Volatile is negatively returned. All right? So a lot of perception of things, of volatility, by exact. I mean, your profession as a journalist is, of course, very important. That way you can reveal bad stuff when it's made and things like that. Wait, did Nassim just say something nice about journalism? Yeah, yeah. No, no, there are a lot of things. It's an important mission. But very often, the scaling doesn't quite match. Like, for example, people in journalism, and this I wrote about in Fooled by Randomness, you should have newspapers, as I say, lengths of newspapers. Now we don't have newspapers, but you understand what I mean.

18:26There should be on days like the stock market crash or on the last couple of weeks, newspapers should be that big, and the rest of the time should be half a page. But they have the same length, all right? So that's the scaling problem in journalism. In other words, you have the news 14 and a half minutes plus, you know, of course, the Bloomberg ad in the middle. So, I mean, that news bulletin should be variable with the events. You see the idea? It's the same thing with market movement. So I don't think that we are experiencing the real volatility compared to what could have happened and what we have seen with explosive markets.

19:06Yes. So, as mentioned, multiple wars going on. We had the COVID shock. We had the inflation shock. We have massive changes happening in the political landscape, including right here in New York City. Is there an underlying reason, in your view, why it feels as though big things are happening? No, my whole point is that to go back to what we call fat tail, fat tail means the smallest number of events explains the largest number of deviations. For example, if you take a thousand people and you have inequality, one person will have most of the money. Likewise, few historical days have most of the information.

19:57likewise. So this is entirely normal but the point is you can't predict ahead of time that you're going to have when you're going to have these days or you're going to have the structure of it is though very very stable it is things tend to follow a power law so I'm going to ask a very basic question that I'm sure you get asked all the time but we are all nevertheless very interested in your answer By definition, black swans, I guess, are unpredictable and impossible to forecast. But what black swans do you see on the horizon? Okay, so let me rephrase it. There's something called gray swans. All right?

20:43So epidemics were gray swans. Or, you know, gray swans means events that have these characteristics of a very small number of events. determine a large part of the total effect, like a small number of events, a small number of wars have killed most of those people, stuff like that, pandemics. So there's grace ones. And you can say they have a structure. You predict them ahead of time, you don't know. But what we do is you can figure out if an environment is fragile or not. And in a fragile environment, you can say, okay, this is prone to break if there's a shock. Like in 2007, we knew that banks were fragile.

21:25Why? They were net short volatility. That's sort of my fragility work in antifragile. To answer your question, I wrote antifragile, which on its own became a monster, right? But the whole idea is to figure out what can have cascading effects from shocks. Okay? As I wrote in The Black Swan, it's foolish to say what color truck is going to break a fragile bridge. Okay? But it is not foolish to say this bridge is fragile, it's going to break one day, don't cross it. Or invite your enemies to jog on it. Okay, okay. What areas of fragility do you see right now? So the first one is… I'm learning. Okay.

22:12So the first one is we have a… I don't know if you're aware of it. Maybe people aren't aware yet. I don't know if we know we have a deficit. Oh, I heard about this. And you know that you have to borrow to pay for the interest rates, for the interest, you know, the debt that you've had before. And at 4 % interest rates, 4 % to 5 % interest rate, this is significant. It means you can have a snowballing effect. You had to borrow more and more. And you know that they're not fixing the budget problem, except verbally. Hey, we're going to fix the budget. It's all the same story. The structure of the political system, unfortunately, is driving us there.

23:02So this is one source of fragility, one main source of fragility, is that the political system is not adapted to that kind of thing. So what happened in the Western world? It's not just the case of the United States. It's a case of the Western world because you've got to look at it. As I describe an anti-fragile, think of an S-curve. Like China can have rapid growth because they're pulling people out of their beautifully landscaped countryside to put them in apartment blocks. Maybe it's not pleasant for the people to live in boxes, but that generates a huge amount of economic growth. Okay? So a lot of people going up the so-called development scale, you're on the convex part of the S-curve.

23:48Okay? The West is on the concave part of the S-curve. So which means that you have two car garages, except New Yorkers live in small boxes like poor people in the Middle Ages. But outside New York City, most people have two car garages, stuff like that. So you can't grow, right? And you don't have poor people, so you have to import them from El Salvador, Panama, a lot of people. You don't have poor people. So you don't – to create that kind of thing. And now you don't want them anymore. They don't want everybody, you know. So they have a problem that growth in America is structurally declining.

24:34Well, at the same time, the debt burden is structurally increasing. You see that aversion. And that applies to the rest of the developed world. Because you've developed, you're arriving to destination, why are you still borrowing? The problem is most countries tend to borrow when they're already rich, when they don't need it anymore, just like people. See, like people on Wall Street, these people on Wall Street, they probably borrow a lot. Now they're already rich, all right? Whereas poor people don't borrow. So that's a big problem. That's number one problem. The second one is China is representing a larger and larger share of GDP of the world.

25:11And so you're going to think that geopolitics aren't going to be the same. And you don't want to live, you know, in the wrong century. Think you're living this century, think you're in a different century. All right, Nassim Taleb. Yeah, thank you so much. Thanks for inviting me. Thanks for eating cow meat. And thanks for the steak. So next time, let's make sure either have organ food or bring wine. We'll definitely have wine. Thank you so much. This has been another episode of the All Thoughts Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Joe Weisenthal. You can follow me at The Stalwart.

25:50Follow our producers, Carmen Rodriguez at CarmenArmin, Dash O 'Bennett at Dashbot, and Kel Brooks at Kel Brooks. For more OddLots content, go to Bloomberg.com slash OddLots, where we have a daily newsletter and all of our episodes. And you can chat about these topics 24-7 in our Discord, discord.gg slash OddLots. And if you enjoy OddLots, if you like it when we do these live recordings, then please leave us a positive review on your favorite podcast platform. Thanks for listening.

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