The Achilles Heel of Capitalism

Taleb makes the point that the achilles heel of capitalism is that if you make corporations compete, it is sometimes the one that is most exposed to the negative Black Swan that will appear to be the most fit for survival.

I have made a similar point previously. Basically, those companies that appear to be "best in breed" are oftentimes those that are the rottenest, ie. they are cooking the books (eg. AIG).

Another Good Point - Seize the Opportunity

Seize any opportunity, or anything that looks like opportunity.

They are rare, much rarer than you think. Remember that positive Black Swans have a necessary first step: you need to be exposed to them.

The M&A Dilemma

For an acquirer the time to buy is when prices are cheap. Like after the tech bubble bust, or post the recent financial crisis. Unfortunately, no one wants to sell then.

And so, the dilemma for an acquirer (one of many actually, including the problem of buying a lemon due to asymmetric information) is that they generally can only get a deal done once the target has appreciated in value (and consequently ain't worth buying).

Acquirers purchase anyways, mainly because they are personally incentivized to do so (ego, personal gain, etc.) and it is hard to sit with underutilized assets (whether cash or unused credit).