Fooled by Randomness Review
This is my third Taleb book and I actually believe it's his best work. Black Swan is close behind and was my first read of his. Earlier in the year picked up Skin in The Game, which I don’t recommend unless you’ve read his other books because you will think him a bit too much.
Fooled by Randomness is Taleb before he became a little bit too cocky with himself. You can see that he still possesses his large ego and humour in this one but hasn't gone overboard with his own success like we find him in his latest book, Skin in the game.
Don’t ask me why I started with Black Swan rather than this, I was told by many that Black Swan was better than this but I disagree now. I am thankful to have listened to a podcast recently from Howard Marks discussing how this is one of his favourites and I can see why.
Onto the book itself - FBR is as I said in the headline to be considered a 'classic'. Why? It gets you to think about how random the world can truly be and how the events we reflect on now was just one of many paths that occurred. It is one of those books that I think everyone should revisit every year or two when they have the time as the concepts are so important.
The book was written in 2001 and is about luck or “randomness”. Since then, there have been a few books since like Maubussin’s ‘Untangling Skill and Luck’ but I feel this is the better one of the genre and what rightfully kicked off Taleb’s Big Bang of success in the book world.
Taleb uses examples throughout to discuss randomness and how we find it irresistible to look at events, companies, people and ignore the ‘survivorship bias’. In a nutshell, the survivorship bias implies that the highest performing realization will be the most visible. Why? Because the losers do not show up.
It got me thinking about the winner take all nature of society and business but how some of this is just down to chance. We never hear about the losers, only the winners. While I don’t agree with his comment about Warren Buffet being lucky (quote “I am not saying that Warren Buffett is not skilled; only that a large population of random investors will almost necessarily produce someone with his track records just by luck”) the book will give you pause to think about what else that we see today is thanks to chance and randomness and then how can you in your own life increase your own odds of success.
Despite confessing in the introduction that this is not a "finance" book, it is laced with finance and trading examples regularly throughout. Taleb can’t help himself as this is his domain and previous career as a trader. I am in finance myself and think his example about traders having small wins accumulated here and there eventually leading to a blow up is very original. Black Swan largely covers this however. One of his better examples is regarding two traders (Carlos and John) illustrate how during the 80’s and 90’s trading desks were filled with people who had no concept of randomness and luck and then despite making $60m for a bank in their career, can often lose multiples of this on the way out without any repercussions (Btw, this is where the idea of Skin in the Game comes at many years later).
Nevertheless, when this random event happens, the excuse given by these traders who do not understand randomness is along the lines of “it was a black swan, how could anyone know that [insert asset class] would do that”. We learn that nobody accepts randomness when it comes to their own success, only when they fail.
One of my favourite quotes and perhaps a good summary of the concept of the book is “"We tend to think that traders were successful because they are good. Perhaps we have turned the causality on its head; we consider them good just because they make money. One can make money in the financial markets totally out of randomness."
Without droning on too long, this is an entertaining book. It is very funny at times and I suggest watching Taleb on Youtube before or during the book so you can see how he is in person to appreciate the book even. more. To me, it is one of those rare books that I think will alter how you view the successes of events, people and companies. Their success was not necessarily pre-ordained. What we see was just one of many possible outcomes that could have occurred. This is why randomness and luck is such a fascinating topic to me. While there are applicable lessons in other domains such as business and I would recommend this book to people outside of finance, you will enjoy it so much more if you understand trading and finance.
Furthermore, if you’ve heard people telling you to read Mr Taleb, then don’t make my mistake and start with this one rather his more recent books. You will get a sense of why Taleb is as revered as he is.
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There is a newer edition of this item:
Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets
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A mistake is not something to be determined after the fact, but in the light of the information until that point.Highlighted by 5,692 Kindle readers- Mild success can be explainable by skills and labor. Wild success is attributable to variance.Highlighted by 4,787 Kindle readers
- Heroes are heroes because they are heroic in behavior, not because they won or lost.Highlighted by 3,701 Kindle readers
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