vague, but exciting

the porous city - commerce - investing

/

/

email me

/

about

Incentive schemes that reward successful managers with huge bonuses, without penalizing them for losing years, skew behavior towards risky investment strategies: "...appearing to create excess returns but in fact taking on hidden tail risks, which produce a steady positive return most of the time as compensation for a rare, very negative, return."

Dealbreaker's refutation is pretty unconvincing. First, I doubt that most traders have enough equity to counteract the effect described above. Second, banks being "long volatility" just means that they make more money when the market moves. That has nothing to do with the risk inherent in an investment strategy's distribution of payouts. One can have a trading strategy that capitalizes on volatility but still hedges risk effectively (I mean, it's not easy...)

My guess is that in most banks it's senior management whose equity compensation ratio is enough to make them take the long view. Therefore you'll see more blowups at poorly managed banks, or at pure-play investment vehicles.

Tech
Product Management, Android, Wearables, Mobile, Visual, Energy, Audio, PIM, Data, Social, s60, Development, barcamp, Javascript, Collaboration, Hardware, Security, MacOS, RSS, Shopping, Open, OS, WRX, Automobile, Crowdsourcing, Storage, Net, a11y, Web, Web analytics, Medical, Business

Other
CrowdFlower, Toys, Bicycling, Boston, Statistics, L.A., Food & Drink, Clothes, Games, Surfing, Quizzes, Minnesota, Friday, Feminism, NYC, Politik, Transportation, Travel, Agriculture, Sports, History, Activism, Geography, San Francisco, Housing, Law, Video, Berlin, Life hacks, Personal care, Podcasts

Music
Mailing lists, Business, Hip-hop, Reviews, Musicians, Lyrics, Making, Videos, Shopping, L.A., Boston, Mixes, Booking, Streams, Mp3s, Labels, Events, House, History, Good tracks

People
Stories, Gossip, Me, Subcultures, Meditation, Exercise, Health, Family, Vocations, Enemies, Weblogs, Heroes, Languages, ADD, Friends, Life hacks, MOTAS, Working with

Arts
Humor, Poetry, Comix, Desktop wallpaper bait, Literature, Burning Man, Rhetoric, Sculpture, Events, iPad bait, Animation, Visual, Spoken Word, Movies, Outlets

Commerce
Investing, Microfinance, Shopping, Non-profit, International Development, Taxes, Real Estate, Management consulting, Insurance, Web, Marketing and CRM, Personal services, Personal finance, Macroeconomics, IP Law

Design
Algorithmic, Architecture, Type, User experience, Presentations, Furniture, Tools, Process, IA, Web, Data visualization, Cool

Science
Environment, Physics, Statistics and Data, Zoology, Networks, Psychology

Travel
Vagabond '08, Uganda, Kenya, Kingdom of Siam

Photos
Friends, Moblog, Photos I Wish I'd Taken

Philosophy
Mind

Mathematics

Internet classic

One Acre Fund

Subscribe to this site's rss feed