In this episode, the third installment of our series on Nassim Taleb's "Chaos Kings," we dive into the topic of risk assessment, particularly how pandemics are often underestimated compared to threats like ISIS. We discuss Universa's investment strategy and its connection with CalPERS (California Public Employees' Retirement System), shedding light on the flawed reasoning that led CalPERS to divest from Universa just before the COVID-19 pandemic hit. The conversation also critiques traditional portfolio theory and the limitations of correlation in predicting and hedging against extreme events. We emphasize the need to grasp compounding effects and non-linearities in risk management. Lastly, we touch on the precautionary principle and share insights on the authors' experiences with smear campaigns, underscoring the necessity of thorough risk assessment and the vulnerability of those who resort to such tactics.
