 Research and Decision Making in a World of Extreme Volatility
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.
“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.”
—Byron R. Wien, Blackstone Advisory Partners LLC
“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!).”
—Martin Leibowitz, managing director, Morgan Stanley, and coauthor of The Endowment Model of Investing
“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.”
—Alex J. Pollock, American Enterprise Institute, and former president and CEO of the Federal Home Loan Bank of Chicago
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