I very rarely cut and paste, but I had to this morning after reading this speech segment from one of the greatest minds on our planet today: Nassim Taleb. The discussion is on the importance of having cash available before a crisis hits to be prepared to purchase assets on discount, a topic I discuss relentlessly. Please note that when I discuss cash, I mean liquid currency (does not have to be US dollars) which includes gold and silver. Hat tip to Paul Kedrosky's Infectious Greed.
All emphasis is mine:
Nassim Taleb (author of The Black Swan) at U Penn:
People kept telling me I was an idiot for years [because] I didn’t invest in markets.
I don’t invest in the stock market because I think it’s a sucker’s game. I make my money and I put it in a repository [of value]. Or sometimes I just do these bets for entertainment, nothing else, so I can have a conversation with someone once in a while on a train or on a plane. That’s the only reason. So I stayed in cash, for years, and then realized that the value of my cash became monstrously high after the crisis. The last 12 years, the stock market did nothing, and cash yielded 40, 50, 60 percent.
Cash gives you an option when other people go bust. That’s what Kennedy did. Joe Kennedy, the father, got rich not from investments but from negative investments. In other words, he had no investment when other people were busted. [Take] the story of the two brothers [one of whom makes $4 per share a year while carrying no insurance against being wiped out, one of whom makes $2 per share with maximal insurance]. If the $2 brother can survive—without being kicked out by the board and replaced with some short-volatility fellow who doesn’t understand anti-fragility—then when the other brother goes bust, he’ll be able more aggressively to buy his inventory—his refrigerator, his car, everything, even his house—for nothing. You see the idea? So you have to think in terms of dynamics of cash: that it’s not a sissy trade.
There’s something called action bias. People think that doing something is necessary. Like in medicine and a lot of places. Like every time I have an MBA—except those from Wharton, because they know what’s going on!—they tell me, “Give me something actionable.” And when I was telling them, “Don’t sell out-of-the-money options,” when I give them negative advice, they don’t think it’s actionable. So they say, “Tell me what to do.” All these guys are bust. They don’t understand: you live long by not dying, you win in chess by not losing—by letting the other person lose. So negative investment is not a sissy strategy. It is an active one.