I finally managed to read the recent interview of Nassim Nicholas Taleb on Portfolio.com that I blogged about a few weeks ago. I mentioned that Mr. Taleb is scheduled to deliver one of the three keynote sessions during the FPA Boston 2008 annual conference.
Now there are a few things that Mr. Taleb said during his conversation with Lloyd Grove that I think might rub a number of FPA members the wrong way. Here are a few of the things that stood out.
Taleb On Ties
Grove: And this “hating ties” business, and I know you’re being funny, but you distrust people who wear ties?
Taleb: It correlates rather well with incompetence.
I don’t know about you, but most professionals in financial services (and this includes a lot of members of the FPA) wear ties. Ladies typically wear professional business suits. In fact, my firm makes it a policy for gentlemen to wear ties. To say that tie wearing correlates well with incompetence is fairly confrontational.
I suppose Taleb makes a valid point. I can imagine numerous examples of professionally dressed individuals that, despite their appearance, performed incompetently; corporate executives, defunct hedge-fund managers, and even politicians included. Perhaps in the financial services industry it boils down to presentation and, more importantly, client expectations.
I’m undecided on this one. Do my clients expect a professional appearance which includes a tie? Will they be less trusting if I don’t wear one? Conversely, do I want to work with clients where the level of trust in the relationship is partially influenced by appearance (e.g. whether or not I wear a tie)?
What do you think? I’m going to try out a new poll to see how FPPad readers feel:
[polldaddy poll=”882416″]
Soft Knowledge and Charlatans
Taleb: The problem of The Black Swan is that people don’t understand the place in the world that we know the least about, where our knowledge is the softest, are where the most charlatans exist-and that’s pretty much predicting rare events. I’m talking about “Extremistan” [the complex real world, as Taleb defines it, where an unpredictable and devastating event can dictate the outcome, as opposed to “Mediocristan,” a bogus model of reality favored by “charlatans” where no rare events occur and probabilities are distributed along a predictable bell curve.] That is my big problem.
I don’t know about you, but my impression here is that Taleb is taking a stab at “bogus models” frequently used by financial planners. What’s the most frequently cited probability tool used in retirement projections? Monte Carlo analysis. What about return distribution and security/fund analysis including standard deviation, Sharpe, Treynor, etc. metrics? I don’t know how Taleb views these simulations. Are they valid models, or are they bogus as they leave out the rare and potentially catastrophic events?
Are Financial Planning Clients “Suckers?”
Taleb: So what I’m saying is we’re suckers. We’d go to a doctor just to have the illusion of control. Likewise, we give ourselves to pseudo-experts simply because we believe these people help us.
I’d like to know Taleb’s true impression of those in the financial planning industry. Does he view planners as pseudo-experts masquerading as holistic advisers to clients? Does he think clients are naive in believing financial planners can truly help improve their financial situation?
Again, while Taleb’s statements certainly get me thinking about deeper issues, I circle back to the thought that the Financial Planning Association might be caught off guard by some of the potentially controversial views Taleb might present at the national conference.
