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Chaos Kings

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Chaos Kings

How Wall Street Traders Make Billions in the New Age of Crisis

Scribner,

15 min read
8 take-aways
Text available

What's inside?

These traders always see the glass as half empty.

Editorial Rating

8

Qualities

  • Eye Opening
  • Background
  • Engaging

Recommendation

The coronavirus pandemic reminded even the most resolute of optimists that things can go horribly wrong when you least expect it. But that reality has made some fund managers quite wealthy. In this intriguing look at “black swan” investing, journalist Scott Patterson offers valuable insights into this pessimistic brand of trading. Black-swan traders don’t try to forecast crashes or predict crises; they just assume that one is always lurking around the corner. Then, when disaster does strikes, the traders reap huge rewards. Patterson provides readers an engaging overview of the broad theory and telling details about this niche in investing for calamity.

Summary

The coronavirus pandemic underscored the appeal of “black swan” investing strategies.

In investing jargon, a black swan is an unexpected event that creates volatility. The concept was popularized by Nassim Taleb, a trader, mathematician and author who wrote a hit book about the topic. Taleb’s main thrusts were that unknown threats lurk at all times and that investors should be prepared. Such an event occurred in early 2020: In January, a nasty new contagion in China grabbed headlines. By March, the pandemic had spread, creating a bona fide black swan. That was good news for Universa, a Miami investment firm that operates the Black Swan Protection Protocol Fund. The fund, run by Mark Spitznagel, had done well in the 2008 financial crisis and in subsequent periods of volatility, such as the Flash Crash of 2010. By the end of March 2020, Universa’s fund reported a gain of 4,144% in three months – a $50 million bet had ballooned to $3 billion.

The massive win drew disbelief across Wall Street. Rivals said Universa’s returns simply couldn’t have been that high. But Spitznagel argued that the returns proved the value of his Black Swan Protection Protocol as an...

About the Author

Scott Patterson has been a financial reporter for more than two decades, mostly at The Wall Street Journal. He is the author of The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It and Dark Pools: High-Speed Traders, A.I. Bandits, and the Threat to the Global Financial System.

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