Cds Quote by Seth Klarman
“Don't short many stocks. Instead they hedge for tail risk with CDS and options. They are happy to incur illiquidity”
About This Quote
Source Book: The Big Short by Michael Lewis, 2010
Investors use credit default swaps and options to protect against extreme market moves, accepting reduced liquidity as a trade‑off.
In simple terms: Hedge tail risk with derivatives, even if it means less liquidity.
Key Takeaway
Accept illiquidity for protection.
Themes
risk management
derivatives
tail risk
liquidity
investment strategy
Mood
cautious
analytical
Type
financial
strategic
When to use this quote
- portfolio construction
- stress testing
- insurance
- market downturns
Key Concepts
Credit default swaps
options
hedging
risk mitigation
Questions to Reflect On
- How much illiquidity can your portfolio tolerate?
- Are there simpler ways to hedge tail risk?
A Different Perspective
Derivatives can be costly and complex, potentially creating new exposures.
