As it turns out, Nassim Taleb thinks it’s a bad idea to be an investment professional.
In a short new paper published on his website, the author of "The Black Swan" argues that, in the future, new entrants into finance simply won’t be able to out-compete existing investment managers who—mostly due to luck—have accumulated records of market-beating performance and vast sums of capital.
The world he describes is very familiar to any one who has been following the financial scene. Successful hedge fund managers like John Paulson are described as market geniuses and gurus.
Despite vast amounts of evidence that these genius returns are in a large part the product of luck rather than skill, investor cash flows toward these folks. Coupled with the outsized earnings, they become multi-billion behemoths. (Related: Whale Watch: What Big Funds Are Buying—And Selling)
Taleb describes these oversized, super-financiers as a “spurious tail,” which he defines as “persons who rise to the top for no reasons other than mere luck, with subsequent rationalizations, analyses, explanations and attributions.” (More: Wall Street Whale Watching: 13F Filings Flood Street)
What is happening recently, Taleb says, is that the power and influence of the spurious tail is becoming so large that there is no real chance for up-and-comers to win in the future.
A young financier starting today, “no matter his skill level, and ability to predict prices, will be outcompeted by the spurious tail."
Stay out of finance, he writes. Instead, the young and talented should pursue work in fields “less commoditized” and with less direct competition.
by CNBC.com senior editor John Carney
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