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In Episode 82, we welcome trader, fund manager, and author, Vineer Bhansali.\nPer usual, we start with Vineer\u2019s backstory. It involves his physicist-origins, an unexpected move to an assortment of trading desks, and a run-in with the great, Fischer Black.\nMeb soon dives in, asking about main strategies Vineer uses with his group, Longtail Alpha. Meb reads a quote from LongTail\u2019s website\u2026\n\u201cLongTail Alpha\u2019s sole focus is to find value in the tails of financial asset return distributions. Either in the left tail as a risk mitigation hedge on multi-asset portfolios, in the right tail to add convexity to an investor\u2019s risk exposures, or in both the right and left tails to produce alpha from convexity and volatility opportunities in a hedge fund structure.\u201d\nMeb asks Vineer to use this as a jumping off point, explaining his framework, and how he thinks about tail strategies.\nVineer tells us that, at LongTail, they believe the probability distribution of returns for asset classes and multi-asset portfolios is actually not bell-shaped. Rather, there are many imperfections and anomalies in the market. And the tails of the distribution are quite different than the central part. While the central part of the curve tends to have many, smaller moves, the tails tend to be dominated by infrequent, large events. With this in mind, the goal is to implement various options strategies to help you position yourself for these tail vents. Keep in mind, there are left tail and right tail events (and a hedged strategy in the middle). Vineer references them all.\nMeb mentions how, right now, most investors are more concerned with the left tail events. So how should an investor think about implementing a tail strategy? And is it even necessary, given Vineer\u2019s statement in a recent Forbes article:\n\u201c\u2026people generally feel better when they believe that they have portfolios with built-in insurance, i.e. protection against losses, even though the expectation (or average return) of a portfolio with or without such insurance is the same.\u201d\xa0\xa0\nVineer discusses the difference between \u201cvolatility\u201d and \u201cpermanent loss of capital.\u201d What you want from a left-tail paradigm is a methodology that keeps you in assets, serving your long-term benefit. Generally, you want to be invested in the stock market. Vineer tells us the name of the game is to be able to survive the relatively short-but-harsh pullbacks, and even accumulate more assets during those times. Given this, Vineer has a 4-lever framework he uses to help create a robust left-side portfolio. You won\u2019t want to miss this part of the discussion.\nAs the conversation unfolds, you\u2019ll hear the guys discuss how, even though there is some concern about a correction now, the markets are still severely undervaluing the price of a sharp downturn. And option premia are incredibly cheap by historical standards.\nMeb then asks for more details about actually implementing a left tail strategy.\nVineer\u2019s answer touches on understanding and identifying how much exposure one wants to equity risk and inflation risk. Then, there\u2019s the need to understand one\u2019s risk threshold tolerance \u2013 the \u201cattachment point\u201d at which you cry uncle, whether that\u2019s being down 10%, 15%, 25% or more. Given this attachment point, an investor could then go to the options market and buy \u201cinsurance\u201d at this level, for a duration of time suitable to the investor.\xa0\nThere\u2019s way more in this episode: option selling strategies (instead of buying insurance, you\u2019re the one selling it in order to generate yield)\u2026 A great piece from Vineer about selling bonds as a way to hedge your portfolio\u2026 How the traditional inverse relationship between market direction and volatility might not be holding up as much (look at Japan recently \u2013 surging markets and volatility together)\u2026 Vineer\u2019s thoughts on artificial intelligence and \u201chow to beat the machines\u201d\u2026 And of course, his most memorable trade.\nAll this and more in Episode 82.\nLearn more about your ad choices. Visit megaphone.fm/adchoices