Real World Risk Institute

In the mid 2000’s after a string of losses, Nassim Nicholas Tooleb closed his fund, Empirica Capital, to become a writer specializing in repacking otherwise prosaic ideas. Despite Taleb’s fame and all the media attention about ‘black swans’, Tooleb’s CV is unimpressive. All his papers are sparse, lacking in rigor, and published in low-impact journals or on pre-print archives, not top finance or economic journals.

As many are aware, his marketing strategy is create strawmen and misconstructions of experts and the literature on finance, and in tearing down these strawmen he makes himself look smarter in front of his followers, and thus can sell books and speaking engagements to those who take his word on his supposed expertise and foresight. Tearing down strawmen is a strategy also used by Neil Degrasse Tyson and Bill Nye, neither of whom will ever engage the leading scientists on global warming skepticism, because strawmen, by definition, don’t fight back.

Further capitalizing on his ‘black swan’ fame, in addition to books, speaking, and consultancy gigs, all over Twitter Tooleb is now promoting something called the “Real World Risk Institute, LLC” offering “MINI-CERTIFICATES IN REAL WORLD RISK RISK TAKING”. From the website (which looks like it was put together on Geocities):

2 risk takers, former full-time traders (with combined experience of more than half a century)
2 persons known to have an attitude problem
6 Phds (quant/math), 4 businessmen/quants/advisors to hedge funds, 2 owners of analytics firms (competing with one another)
2 UHNWI (Ultra High Net Worth Individuals)
4 persons who specialize in tail events in both theory and real-life practice
More than 25 books, and around 500 scholarly publications. We dominate the subject of fat tails in both theory and practice
4 are probabilists with deep enough a knowledge of probability to respect practice and explain things with concepts and pictures

This ‘certificate’ is only $7,000 for a 5-day course, which works out to around to around $1,400/day.

The obvious question is: If Tooleb’s ‘antifragile’ strategies are so effective, why are aren’t these quants, advisors, ‘risk takers’, and ‘former traders’ actually trading instead of giving lectures? If top traders can make tens of millions, even billions of dollars, to sell such information for $20 (a book) or $7,000 (a seminar) makes no economic sense – unless it doesn’t actually work. Second, as a consequence of promoting this method, if everyone starts buying volatility instead of selling it, it makes buying volatility less profitable because prices become too high – specifically, the skew becomes too steep, which has already happened dramatically since 2013. Although ‘antifragile’ strategies may have big payoffs, the long string off losses (amplified by the skew) often makes the expected value of the strategy negative. The reality is, Tooleb and his posse of traders, quants, and advisers can make far more money with books, consulting, super-expensive seminars than actually trading, and explains why Tooleb closed his fund.

From the FAQ page:’

Why do you call it “Mini” certificate?

A one week program delivers a mini-certificate. We plan a second week in the future, for a more technical certificate.

It’s little more than a very expensive receipt.

Mini is a good way to acquire insights without being overly taxed.

That’s a major reason why the certificate is worthless. An actual quant degree requires mathematical rigor, which this program lacks.

What are the requirements to enroll?

Simply, some experience with risk and, being a typical reader of, say, Antifragile or similar books.

The honest answer: your wallet, and little else. Unlike prestigious organizations (Harvard, Stanford, Singularity Institute, etc.) that screen applicants, the bar isn’t just low – it’s non-existent. A cadaver could get one of these certificates if it could provide the money.

What makes your program different?

Most risk “certification” are design to learn to comply with Basel and other regulations. We teach risk.

Methods taught by non-risk takers wouldn’t have helped with the latest banking crisis. Ours would.

See the two graphs below from Silent Risk

Spoiler alert: his whole strategy is to buy volatility, which has a negative expected value, save for a few instances like 2008.

(Look at VXX, a trading vehicle that is a proxy for going ‘long’ volatility, which has lost some 99.9% of its value since 2009. The reason for this is because one cannot simply ‘buy volatility’; you must buy volatility futures, which are overpriced relative to the spot price due to contango. An abundance of literature also shows that out of money put options are too expensive. The extrapolated distribution that underpins these put options overestimates the occurrence of large declines in stock prices.)

Q: I am considering a career switch. How will the certificate help me?

A: The Mini-certificate is priced at about 40% less than an executive MBA, and requires a tenth of the time and financial commitment, so we believe that the payoff will be quite generous. We certainly have the name recognition since we have more “impact” in the real world than all other people involved in risk combined. (For instance, to get an idea of the name recognition in business, just one of our books, The Black Swan has had many more public mentions than all other books on probability and randomness by all other authors combined.)

40% less and still worthless. An MBA, devalued as those are becoming, is still recognized by employers as a valid credential; a ‘mini certificate’ is not and never will be. You’d be better off just scribbling in crayon the words ‘mini certificate’ on a piece of paper – at least you’ll save $7,000.

Talk about the pot calling the kettle black…