Fooled by Randomness

books:


	• Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets Nassim Nicholas Taleb Random House Trade Paperbacks, 2005 - 368 pages average customer review:based on 373 reviews view larger image
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highly recommended

Fooled by Randomness - every day!

Nassim Nicholas Taleb is an extremely insightful individual with an equally impresive gift for storytelling.

His basic thesis is that although we like to think of our lives as ordered and predictable, they are extremely prey to random chance, and are in fact far far more so than most of us can even understand. We create delusions of predictabilty, mentally rewriting our own history in order to avoid excessive anxiety. He brings a unique perspective as both a genuine thinker and a man of practical experience in one of the most volatile occupational arenas of modern life - the stock market.

I found the autobiographical aspects of this book (both in the first person narrative, and the use of the fictional Nero Tulip) as interesting as its more philosphical and analytical content.

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I liked it

I liked this book. (Ignore most of the philosophy junk...)

One thing you have to say for this guy. The book is published in 2004. He predicts that some hedgefunds trading short treasuries and long sub-prime with 20 times leverage will blow up because they're not factoring in the risk right. In 2006 four such funds blew up...

The key pieces to walk away with here are....

Don't think YOU KNOW for CERTAIN that something is going to happen or not happen because of history or what you know...

You can't statistically prove that something won't happen because it has never happened before.

That most of what's on the news is rubbish or hype... (Which I buy because most of it is either dumbed down or cut short that the meat is missing... )

Most market movement is noise...

People need to evaluate not only the probability of an event or a move up or down... but you have to factor in the amounts/size of that movement. Example: So if you make a dollar a day for 99/100 days only to loose 1000 dollars in one bad day, is that a bet worth taking...

Limit your use of leverage or know the downside.

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Great Book

I thought this book was great although I didn't read the whole thing. It appears to confuse people because it attacks statistics while spending so much time examining them, but the title makes it clear that this is the intention of the book. This is an important point in our statistics obsessed socieity. Books like Freakenomics (which has a column in the NY Times) treat statisitcs as facts and reality as an illusion. (So if statistics show something obviously wrong then our "perceptions" must be wrong.) Educated people use statistics to show trounce those with less eduction and of course there's the stock market and various new financial istruments that rely on statistics. All of this is fatally flawed.

The other issue is his writing style, which is really old fashioned. I haven't read lots of old science books but it reminds me of Frankenstein, the mad scientist of alchemy. Of course, every writer is a politician now and with all the political correctness often you can't figure the sex of the writer let alone what they actually believe. But then they try to connect with you through way too much biography, like with Greenspan's book. Taleb obviously wasn't trying to run for office and he doesn't really tell us much about himself. If you've worked in tech or been to grad school lately you'd recognize this new personality, which can be insulting although Taleb is actually moderate in this regard. If you don't like him then don't go to grad school and don't work in any area with lots of elite foreigners.

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Randomness fools us all.

This everyman's introduction to randomness should prove interesting to everyone who invests for profit, fun or retirement. The narrative style conveys the author's point that random spikes or troughs can occur in any investment without warning and that the oft used normal curve does not necessarily model the behavior of investments. It's sort of like saying that the normal wind speed is an accurate model for what could happen in tornado alley on a specific day in the summer.

That being said, there's little guidance for the investor about ameliorating the effects of "black swan" events; the best one can do is expect them and try to avoid being over-extended in yesterday's hot investment when the bottom falls out.

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reviews: page 1, 2, 3, 4, 5, 6, 7, 8, 9, 10

?[Taleb is] Wall Street?s principal dissident. . . . [Fooled By Randomness] is to conventional Wall Street wisdom approximately what Martin Luther?s ninety-nine theses were to the Catholic Church.?
?Malcolm Gladwell, The New Yorker

Finally in paperback, the word-of-mouth sensation that will change the way you think about the markets and the world.This book is about luck: more precisely how we perceive luck in our personal and professional experiences.

Set against the backdrop of the most conspicuous forum in which luck is mistaken for skill?the world of business?Fooled by Randomness is an irreverent, iconoclastic, eye-opening, and endlessly entertaining exploration of one of the least understood forces in all of our lives.

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