I recently finished #RWRI #rwri16 course, organised by Real World Risk Institute and taught by @nntaleb, Robert Frey, Raphael Douady, @DrCirillo Here is a list of practical first principles (not exhaustive) I took away from this short and enlightening program
1. Take risks one can measure than measure risk one is (blindly) taking. In other words, ‘risk taking’ is better than ‘risk management’
2. Risk of ‘ruin’ from a fat tail is not the same as the risk from ‘tinkering’. Avoiding -ve consequences from small mistakes over time can lead to ruin
3. Comprehend reality before modeling risk, than the reverse
4. In investing/all forms of finance, one’s ‘skin in the game’ is evidenced if one manages others’ money the way s/he would manage her/his own
5. All systems are non-linear and prone to fat tails. It is better to be convex than concave
6. But, combine concavity (invest in Lindy/antifragile portfolios) with convexity (bitcoin, crypto). Usually the ratio is 80/20 or 90/10
7. Apply systems thinking and systems complexity: small networks are more practical than large ones; the latter are more prone to consequences of ‘fat tail’ risk
8. Survive better with hyper paranoia. Always find and measure the ‘maximum’ risk, than the ‘average’, and then clip the tail
9. Replace popular belief: correlation is not causation with a lesser known reality: correlation is actually not correlation
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