Stalking The Black Swan

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Overview

Kenneth A. Posner spent close to two decades as a Wall Street analyst, tracking the so-called "specialty finance" sector, which included controversial companies such as Countrywide, Fannie Mae, Freddie Mac, CIT, and MasterCard—many of which were caught in the subprime mortgage and capital markets crisis of 2007. While extreme volatility is nothing new in finance, the recent downturn caught many off guard, indicating that the traditional approach to decision making had let them down. Introducing a new framework ...

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Stalking the Black Swan: Research and Decision Making in a World of Extreme Volatility

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Overview

Kenneth A. Posner spent close to two decades as a Wall Street analyst, tracking the so-called "specialty finance" sector, which included controversial companies such as Countrywide, Fannie Mae, Freddie Mac, CIT, and MasterCard—many of which were caught in the subprime mortgage and capital markets crisis of 2007. While extreme volatility is nothing new in finance, the recent downturn caught many off guard, indicating that the traditional approach to decision making had let them down. Introducing a new framework for handling and evaluating extreme risk, Posner draws on years of experience to show how decision makers can best cope with the "Black Swans" of our time.

Posner's shrewd assessment combines the classic fundamental research approach of Benjamin Graham and David Dodd with more recent developments in cognitive science, computational theory, and quantitative finance. He outlines a probabilistic approach to decision making that involves forecasting across a range of scenarios, and he explains how to balance confidence, react accurately to fast-breaking information, overcome information overload, zero in on the critical issues, penetrate the information asymmetry shielding corporate executives, and integrate the power of human intuition with sophisticated analytics. Emphasizing the computational resources we already have at our disposal—our computers and our minds—Posner offers a new track to decision making for analysts, investors, traders, corporate executives, risk managers, regulators, policymakers, journalists, and anyone who faces a world of extreme volatility.

Columbia University Press

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Editorial Reviews

Martin Leibowitz

As a respected equity analyst, Kenneth A. Posner has seen firsthand what it means to be blindsided by black swans. In this deeply thoughtful and heartfelt book, he traces out the sources of what we think of as 'surprise events' and offers a pragmatic approach for confronting and hopefully mitigating their adverse effects. Along the way, there are many beautifully elaborated stories depicting how swans often won the day, as well as descriptions of the all-too-rare positive outcomes. This is a valuable book for anyone who treads a path through an uncertain world (hint: that should be everyone!).

Alex J. Pollock

How do highly intelligent bankers and investors get surprised and brought down by financial crises created by their own interactions? Why can't formulaic rules and regulations prevent such crises? How can sophisticated models be so far off? How can one cope with the 'the unpredictability of collective action'? Posner provides insightful, honest, and very instructive real-world adventures in how 'to learn to live with extreme volatility,' as financial markets marched, trumpets blaring, into the quicksands of recursiveness.

Max H. Bazerman

Posner's Stalking the Black Swan is an insightful integration of the emerging field of behavioral economics with real-world insights about financial markets. Posner combines true intellect, a fascinating professional background, and a critical mind to help us understand where laboratory insights hold up and where they might not. This book will be a valuable read for anyone interested in the role of behavioral economics in predicting market behavior.

Byron R. Wien

Posner has drawn on his extensive experience as a first-rate analyst to examine the clues leading up to the recent meltdown of a number of once-respected financial institutions. But this is not a financial retrospective. He shows us how to combine numbers crunching with intuition, and he provides us with a set of disciplines to use in anticipating future Black Swan events—both positive and negative—and to profit accordingly.

Wall St. Cheat Sheet - Damien Hoffman

Stalking the Black Swan provides a great resource to help you fine tune your investing framework for the volatile environment of our times.

Wall Street Cheat Sheet

If you are looking for a well-written book which seeks to merge quantitative analysis, fundamental research, and human psychology, Stalking the Black Swanprovides a great resource to help you fine tune your investing framework for the volatile environment of our times.

Motley Fool

a wonderful read on how to think about, analyze, and react to extreme events.

Wall St. Cheat Sheet

Stalking the Black Swan provides a great resource to help you fine tune your investing framework for the volatile environment of our times.

— Damien Hoffman

Seeking Alpha

Stalking the Black Swan doesn't attempt to explain why or how the crisis happened, but instead offers practical, crisis-tested advice on methods for uncovering a similar looming disaster in your own portfolio.

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Product Details

  • ISBN-13: 9780231150484
  • Publisher: Columbia University Press
  • Publication date: 3/1/2010
  • Series: Columbia Business School Publishing Series
  • Edition description: New Edition
  • Pages: 284
  • Product dimensions: 6.30 (w) x 9.25 (h) x 0.90 (d)

Meet the Author

Kenneth A. Posner is a financial services industry analyst and a fifteen-year veteran of Morgan Stanley, where he served as managing director and senior research analyst and where his work received high rankings from Institutional Investor and Greenwich Associates. He earned his MBA from the University of Chicago Graduate School of Business and holds the Certified Public Accountant, Chartered Financial Analyst, and Financial Risk Manager designations. Visit the author at www.stalkingtheblackswan.com.

Columbia University Press

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Table of Contents

Pt. I Uncertainty

1 Forecasting in Extreme Environments 3

2 Thinking in Probabilities 32

3 The Balance Between Overconfidence and Underconfidence, and the Special Risk of Complex Modeling 55

Pt. II Information

4 Fighting Information Overload with Strategy 87

5 Making Decisions in Real Time: How to React to New Information Without Falling Victim to Cognitive Dissonance 110

6 Mitigating Information Asymmetry 137

Pt. III Analysis and Judgment

7 Mapping from Simple Ideas to Complex Analysis 157

8 The Power and Pitfalls of Monte Carlo Modeling 178

9 Judgment 206

Notes 237

Index 257

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    Posted June 21, 2010

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