A tail-risk hedge fund advised by Nassim Taleb, author of “The Black Swan,” returned 3,612% in March, paying off massively for clients who invested in it as protection against a plunge in stock prices. […] Spitznagel included a chart in his letter showing that a portfolio invested 96.7% in the S&P 500 and 3.3% in Universa’s fund would have been unscathed in March, a month in which the U.S. equity benchmark fell 12.4%. The same portfolio would have produced a compounded return of 11.5% a year since March of 2008 versus 7.9% for the index.
Does anyone know what kind of investments a fund like that does, and whether there’s a simplified version of that which retail investors such as us can replicate? I guess returns of 3,612% can only be achieved by buying far out-of-the-money put options? You can protect against tail risks by always holding (say) far out-of-the-money SPY puts, but presumably that’s too costly to be worth it, and if you can’t accept the tail risk you should just invest less?