Tags: Taleb | black | swan | Stock | Drop

Taleb-Connected Research Firm Sees Possible 40 Percent Stock Drop

By Dan Weil   |   Thursday, 16 Jun 2011 02:11 PM

A 40 percent plunge could be in store for the Standard & Poor’s 500 Index, according to a research firm that employs investment guru Nassim Taleb as “chief scientific advisor.”

Taleb, of course, wrote the renowned book “The Black Swan: The Impact of the Highly Improbable.”

The research firm, India-based Universa, studied the movements of S&P 500 stocks over the last 100 years, CNBC reports.

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Nicholas Taleb
(Getty Images photo)
“At current valuations, . . . there is . . . a 20 percent chance of a well-over 40 percent correction in the S&P 500 within the next few years,” Universa chief investment officer Mark Spitznagel writes in a paper obtained by CNBC.

A ratio of the total market value of companies divided by their total assets points to the big plunge, Spitznagel argues.

Perhaps the prediction should be taken with a grain of salt given that Universa, which manages about $6 billion, invests in insurance that would hedge against stock market losses.

But “this is very general broad market research,” Spitznagel told CNBC. “[We’re] telling it like it is.” Taleb didn’t participate in the report.

U.S. stocks are rebounding from recent losses Thursday. But many market participants remain bearish like Universa.

“I think investors are still focused on what will potentially come out of Greece," said Joe Quinlan, chief market strategist at US Trust, tells Dow Jones. "Anyone putting money into equities today is being defensive."

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A 40 percent plunge could be in store for the Standard Poor s 500 Index, according to a research firm that employs investment guru Nassim Taleb as chief scientific advisor. Taleb, of course, wrote the renowned book The Black Swan: The Impact of the Highly Improbable....
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