CHAOS KINGS

Wall Street Journal stalwart Patterson continues his explorations of high finance with a clutch of contrarian risk takers.

Playing the market is part art, part science, and part leap of faith. Investor and statistician Nassim Nicholas Taleb, who stands at the center of Patterson’s latest, following The Quants and Dark Pools, takes an alternate view. He assumes that the world is a series of rare black swan events (“extreme events no one could have predicted…like a sudden market crash”), and he further urges clients to think that the conventional wisdom of investing—diversified portfolio, trying to time the market—is a fool’s game. Come the pandemic, and the contrary wisdom of Taleb and company, codified as “Panic now—panic early,” proved its use. While a single “black swan” event might be survivable, a cluster of them, including disease, financial closures, supply-chain issues, inflation, and more, can break the bank. Taleb and like-minded investors bet on things going wrong and planning for worst-case scenarios. Although Taleb’s black-swan protection protocols were widely if incompletely imitated, they were not universally accepted. Patterson highlights the thought of “complexity theorist” Didier Sornette, who argues that Taleb’s notion that the future is hard, if not impossible, to predict is unnecessarily dark and who developed an alternate theory exemplified by “dragon kings” rather than black swans. No matter which image you follow, the facts are incontrovertible: Set a multipartite catastrophe such as the pandemic in motion, and huge amounts of wealth will disappear, as with one popular fund that lost 97% practically overnight, “a stark real-world example of gambler’s ruin.” If anything, Taleb, by Patterson’s account, is more pessimistic than ever, warning that climate change is going to yield a world that will make us long for the present. Throughout, the author provides deft, accessible analysis and guidance.

Complex economic and scientific theories lucidly rendered, even if the resulting picture is unremittingly gloomy.