Nassim Taleb’s Turkey Problem

The origin of this blog is rather simple. I’ve read all of Nassim Taleb’s Incerto books and subsequent Skin in the Game. I find a large majority of what he says thought provoking, some ridiculous, and at many times, in certain agreement with my own beliefs. One concept that struck me as impossibly simple, but yet incredibly important and easy to use is The Turkey Problem.

In Taleb’s own words from The Black Swan:

Consider a turkey that is fed every day, every single feeding will firm up the bird’s belief that it is the general rule of life to be fed every day by friendly members of the human race ‘looking out for its best interests,’ as a politician would say. On the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the turkey. It will incur a revision of belief.

This is one of the central concepts of the book and runs throughout the entire series. It’s also a common disclaimer we see on most investment vehicles. Past performance is not indicative of future results.

Mathematicians and philosophers call this the “Problem of induction.” Induction, making a claim based on a series of observations is generally a risky proposition. While it is easy to prove false, it can never be proven true, no matter how many observations are made.

I sold a business a few years back, so have some bags of cash needing to find a home, and have been underwhelmed by traditional investments (stocks, bonds, and real estate). This started from a personal belief (completely impossible to prove) that most assets have been overpriced due to an overstimulated economy. Right or wrong, I’ve been hesitant to put my capital in anything but poor performing online savings accounts. But what I found when I discovered Taleb’s books was that even in more reasonable times, these same assets aren’t nearly as fool proof as most would believe.

With this belief and knowledge of The Turkey Problem, I started down a path of searching out investment options where I have some protection or hedge against a Wednesday Afternoon event.

Every. Single. Time. I asked about risks, investment representatives have answered “We haven’t lost any capital in 12 years,” or “We paid every interest payment since inception of the fund,” or other such nonsense. And every time I’ve told them the story of my friend the turkey, they’ve had no answer and usually said nothing at all.

This blog will be where I document each investment option and my attempts to analyze how they may or most likely, may not align with this goal. While I’m not a financial “expert”, I am a pretty smart guy and like to believe I’m thinking these through appropriately. But I’m also humble enough to realize I will get some things wrong. Please share challenges or corrections.

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