Fooled by Randomness by Nassim Taleb

Fooled by Randomness or The Hidden Role of Chance in the Markets and in Life is a very interesting research book on randomness but it completely lacks the scientific terms or complexity. It’s a story told by the expert trader about the randomness itself, its effect on our life, on the markets and on our vision of the surrounding world. The randomness is one of the most important parts of the Forex market (and any other financial market out there). That’s why it’s very important for traders to see the probabilities right and be capable of measuring almost everything in terms of probability. This book can be of a great help to any trader and not only trader but almost anyone. Although it may look a bit “crazy”, it’s very easy to read and you’ll rarely need to reread paragraphs to understand them properly.

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5 Reviews

  1. Matt:

    Finding himself in the shoes of a guru, Taleb, a surly options trader who opted out of the career, has no intention of being one ever again.

    Doing what you love classically enables a person to never have to work throughout their life. Taleb’s style of options trading was singular in its disagreeability; he found his work harrowing and unappetizing – it even showed in subconscious twitches in his face as his ire rose. A writer even once published a work documenting Taleb while he was still an options trader.

    Having written a book entitled ‘Black Swans’ and ‘The Black Swan’(which some people claim is a more even minded and better reading book); Taleb declares that unique occurrences are not as unique and infrequent as once believed. He supposed that fat tails were the hallmark of risk distribution and not the thin tails as was commonly held.

    While his use of the term Black Swan to categorize a rare event that happens every so often is apropos, actual black swans are not as unique as you would think. I found myself dining at a restaurant that had a pond on premises, where both black and white swans were present. The Australian swan is summarily black, unlike the other swans found around the world – a fact that was unknown until Australia had been fully surveyed. Though without this knowledge, in the 1700’s, Utilitarian philosophers David Hume and John Stuart Mill debated the extent of inductive reasoning and the existence of black swans, which Mill was in favor of, without any empirical evidence otherwise. On this point, Taleb’s take on the black swan may not mean what he takes it for.

    Thus Taleb created a plan that would keep him from losing his assets in case of what he named a black swan, when the market guts itself through a series of extraordinary circumstances that come together in one fell swoop. Many investors may find this method unattractive; Taleb would not invest all of his money at one time. He also made sure that his trades would be the most lucrative whenever the market went on a down slope – on a regular market day, Taleb would find himself losing money, but whenever a black swan would occur, he would come out on top every time. This strategy frayed on Taleb’s nerves because nearly every day would incur a loss of money on him, and only when things went bad for the market was he able to make the profit that kept him wealthy.

    Taleb’s constant miscalculations about such things as frequency distributions and other things leads many to regard his work as pretentious and self-absorbed, coloring him as an intellectual guru bandying about ideas that may or may not have any real world practicality. If you want a clear-headed approach to Black Swans, search for Google’s article on ‘Fat Tails’

    I believe Taleb when he relates in his books about the people surrounding him always being mad at him, because without ever having met, I still dislike him.

  2. G-MAN:

    I have always been taken up by plausibility and contingency. Folks like to believe in destiny. They even like to think that Contingency is the main culprit behind the track that their life is on right now. Arbitrariness is what we pros from the field of fiscal assumption face. Plausibility is definitely not the human race’s cup of tea. Truth be told, if given a choice, we as humans always select the most absurd choice in Mathematics. We choose the option which is certain but is lower in value than the one which could be of better value but is predicted by Mathematics instead of us.
    Come to think of it almost all our actions are centered around plausibility and that’s exactly what this books brings to our notice. A good example would be how we have learnt to place talent over good fortune. How is it that a person with ability gets all the praise instead of crediting his success to luck? Narrow minded, this thinking is but it also is dodgy. Another important aspect that is highlighted by Taleb is the security that we fool ourselves into believing when faced with a pair situations in which there could be one that’s favorable and one that’s completely opposite. An example for this could be the naked option sellers. These sellers have an option of falling back on tried and tested methods which will no doubt bring them steady profits but they seem to be attracted to high risk and don’t mind putting to stake the profit that’s taken years to build! The black Swan which is Taleb’s later book has everything about the “hidden risks’ explained. It was kind of prophetic because it as released right before the fiscal crisis that took place in 2007-08. The book had exposed several risks which were meant to be hidden in VAR. Now VAR as we all know is the calculation model which has a lot of faults but is commonly accepted.
    Non-judgmental is what Taleb comes across as with his conversational style of writing. I’d like to think of it as a very delicate book which brings out many sides of his most liked topics like aesthetics and even versification. To me, this was a special touch however not many people may fancy this because they feel that the writer easily gets distracted from the main topic. This expostulation is very private as well because Taleb quotes examples of people who he knows and the proficiency which he has in fiscal markets. There may have been jeopardizes that you may have never thought of or may not have even thought about the inception of your success. This is what the book will kindle in you. For instance there are those who have never even given a thought to the possibility of redundancy but have invested all their success in various properties.
    If one acts on the various strategies given in the book, it will no doubt instigate a vigorous plan for not only investments but also one’s life. The only restraint exercised by Taleb was that he did not offer any examples from the world outside the fiscal market. If that would have been done, people could understand his point better. Indubitably this piece is as fluent and vibrant as it could be and we could only hope that in the years to come, subjects like regulation and risk management in the fiscal market would be influenced with this practical approach.

  3. Kevin:

    For generations expectations of humans about the impending have embedded faults that were nothing but methodical and so is the case with haphazard progression. This is exactly what Taleb brings to our notice. The problem with the style he writes in is that he tries to bring in a lot f his personal individuality in the book and this may make it difficult for the reader to understand at times. He has very limited arguments but takes 250 pages to talk about them. This is all thanks to the stories he includes with the points. Had he wanted to only talk about his arguments, the book would have been not more than a few pages long. However, it’s the very stories that make this book interesting. Recommend it, I still will.

  4. un-radio:

    I must say that the storytelling makes the book quite a fine leaf through. Taleb hypothesizes that difference between providence and talent is paltry. He also says that with a large population there’s always that chance where a few nincompoops with providence might just be very successful for some time. To be able to rationalize this, the probability theory is used by him. The example given by him is thus – He says that if there is a probability of half of the total number of money mangers flourishing every year, now after a period of about 5 years only few of the total managers will survive just because of nothing but sheer providence. Now when this theory is analyzed it is prven to be principally inexact. This is because each of those financial managers do not have freedom of thought. In fact even the artifice of trading does not have too many strategies that are totally free of each other. Everything is dependant. Now if you would like you can even add aspects such as influence, rates of interest, predicaments due to politics and even human conduct and all of a sudden you will notice how everything is drenched in dependency. Given a situation where the masses tried implementing trading strategies which in the true sense re independent, then everyone would see that the whole market would have been exceedingly fugacious than it is now. In evaluating various organizations the author has gone completely awry. It won’t be wrong to say that the upcoming performance of a company can be based o its previous doings. Spontaneously I would like to imbue in an organization which seems to have a promising record when I look at its past than stake all my money in the dangerously new firm that sounds overtly tempting. The truth is that I am nothing but a very cold investor, not by any chance a trader. I’ve managed to see all the decumbent and the high rise for about 10 years at least and have also managed to gin if not anything but a fair amount of accomplishment.
    To a capitalist and otherwise, the news that one sees daily is destructive. I take him up on even the fact that he states that people are caught by surprise by “black swan” events. Donald Rumsfeld’s hilarious pieces “known unknows” and “unknown unknowns” came to my mind as I leafed though the concept of black swans. “There is nothing new under the sun” is what he had aptly quoted.

  5. Alan Troy:

    I found the book on quantitative derivatives, Dynamic Hedging, by Mr. Taleb extremely interesting and I found it very useful and that is just what prompted me to pick up this book. The book is greatly enhanced by the insight the author gives regarding life as a trader in the market. I felt a book by the same author containing his viewpoints on probability to be an extremely mouth watering prospect.
    The book certainly appears compelling but I disagree with the author at various points and I understand that as a reader, I have that right.
    To simplify what the author has to say the author argues, in a very controversial way, that extreme occurrences occur much more frequently than the traders actually like to believe. Ergo is a very useless concept and it makes no sense in derivative trading at any point in time.
    I have a lot of experience in equity derivatives. Mr. Taleb’s superiority lies in the field of fixed income as well as FX. I do not have a lot of knowledge related FX options but I can say that in the options market, with all the equity listings, downdrafts and explosions are nearly equally volatility. The volatility crush which occurred in the first half of 2000 served extreme harm to the Russian debt default as in 1998. Money options are never very cheap but various people purchase them from what Taleb seeks to protect. They turn out to be very expensive at times.
    I was greatly unsettled by what Taleb writes about getting lucky in the trading market via human performance. He goes on about talking about the successful and rich trader and then the extremely competitive but relatively unsuccessful trader, which I assume he is. He dedicates the success of most of these traders to getting lucky and he cites that most trader just mask this fact by citing ‘hard work’ and ability.
    This scares me. The author would be expecting my reaction. The results of this will be very frightening and if it is discovered that the wealth is not deserved then the taxation policies have the right to tax it and distribute the wealth among the unlucky ones. Most people who shy away from hard work are not generally those who have a lot of ability to boast about. They are mostly just lazy. The style a person adopts to perform presents a good picture of the person’s performance.
    The MBAs who are at the butt of his criticism are no losers themselves. Mr. Taleb seems to have only met the fools in the trading market throughout his career. It is not very often that beginners get to say to their bosses that the Wall Street Journal presents massively useless information.
    As you may have deduced by now, I enjoyed the reading experience of this book. I wouldn’t carefully analyze it otherwise. You man not appreciate all that it has to say but it will force you to think.