Sunday, April 13, 2008

PRINT-Fooled by Randomness by Nassim Nicholas Taleb



I must preface this review by saying that this is one of the best books I have ever read in my life. I really cannot say enough about this book. It is not often that I read a book that is so vitally important or so lifechanging. This book changed my life.

I have been dealing with randomness, complexity theory, and what have you in my thinking for a long time. Here are a few things you may not realize:

-There is no evidence that stockpickers have any skill whatsoever. That actively managed mutual fund you are invested is charging you for their lucky coin flipping.

-Rich people become rich largely through luck. This explains why so many of them are so stupid.

-The same qualities that will make you rich--a large appetite for risk--are also the same qualities that will make you bankrupt.

-People who climb the corporate ladder and CEOs and others are mostly adept at taking credit for things that are beyond their control.

-People fool themselves all the time by seeing patterns in random events. The most prevalent one is the hindsight bias. This is why you are invested in that actively managed mutual fund, and why you will probably end up losing money over the subsequent years.

I can go on and on with these things. Taleb really has written an outstanding book here where he shows in his unique style how randomness fools us at every turn.

The one thing I have learned from this book is to not shoot for the stars. Taleb uses an illustration of a trader who plays it safe and enjoys a very good lifestyle. You begin to envy the guy a bit until he illustrates his risk taking neighbor who is also a trader. The risk taker makes way more money, enjoys a much better lifestyle, and then crashes spectacularly. I'd rather play it safe myself.

An appreciation for randomness and statistics has done a lot for my life. It changed the way I invest. It changed my dating life. I am hoping it will change my career path. Overall, spectacular success comes from spectacular circumstances that we call luck. But ordinary success is well within reach for anyone. I am content with ordinary success.

Fooled by Randomness is a very helpful and eye opening volume. I think everyone should read it.

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