I have just finished reading the book Fooled by Randomness by Nassim Nicholas Taleb. He later wrote the popular philosophy finance book The Black Swan. I got the book out from the library.
Taleb is influenced by the philosopher Karl Popper, who said that 100 white swans landing on a lake is no guarantee that the 101st swan will also be white, it could be a black swan. In other words past performance is no guarantee/prediction of future performance.
In the first chapter: Solon's Warning: Taleb tells the tale of the rich old king Croseus. One day a man called Solon visited, and was completely unimpressed by his wealth. When the king asked why, he said: “a man's happiness may yet, in the course of time, suffer change. For the uncertain future is yet to come”. When the king was captured and about to be killed by his enemies, he thought that Solon was right. The lesson is to be wary of those who are successful, because the wheel of fortune can turn at any time and depose prior success. Taleb says that a random black swan event can destroy any fortune.
Taleb says people who do well, may do so only because of luck. The random event, the black swan may descend from the skies at any time to make a mockery of your earlier success. He talks of how a stock market trader could, for example, make £30 million for his company over ten years, but then lose £300 million in 3 minutes.
There is an explanation of Outliers, these are statistical events that lie outside the normal range. By chance these will always exist, for example if you throw some marbles onto the floor, a few may end up much further away from the pack than the others, purely by chance. Someone therefore may become far more successful than his peers through sheer luck. Malcolm Gladwell wrote a book of the same name (Outliers), which Taleb references in this book.
In this book, Taleb takes on one of my favourite books “The Millionaire Next Door” by Thomas Stanley. He says the authors only counted the winners in their survey, and ignored the losers, i.e. all the people who followed the principles and techniques, but failed. He also takes on the book “The Millionaire Mind” written by Thomas Stanley, by saying that risk taking, as defined by Stanley, is a character trait found in millionaires, but also in failed millionaires.
He says that success does not necessarily lead to more success, and in fact could be indicative that a big failure is on the way. I disagree, as I think that when you start to raise your finances, you can then diversify this extra money into other ventures, and therefore increase your chances of success.
A good thing about this book is that it's also about the mind, psychology, sociology, history, philosophy, and the way the human brain works. The theory of human reasoning is well covered in this book, and Taleb details many blind spots people have in their thinking. Taleb is widely read, and even though his bibliography runs to over 500 books and references. I've seen enough evidence in the main text of his book to actually believe he has read them.
I read Taleb's other book, The Black Swan and I did not like it. I DO like this book, and its clear that The Black Swan was only written to capitalise on the success of this one. This is a great book which made me think about the way I mentally approach the concept of finance and success. It made me question my methods, expectations, and results.
This is a great book. 3 stars out of 5 for Taleb.
Nassim Taleb is a successful stock market trader and millionaire in his own right, who is now also carving a lucrative career in writing books. I heard that he was given a $4 million dollar advance for his next book.
Taleb is seen as a highly innovative financial philosopher by mainstream sources. Along with Malcolm Gladwell, his rejection of conventional success planning makes for controversial reading. I remember reading billionaire Mark Cuban's blog recently, where he made it clear he is currently interested in the writings of Gladwell and Taleb.
Of the people who did well in the past property market, quite a few of them are coming back to earth with a crash. Who would have thought the black swan of the credit crunch would arrive? Many a successful property developer may have got there only by luck, as some people will be very lucky. Fooled by Randomness is a sobering book as it is a reminder that misfortune can always visit anyone, in spite of their present success. To me this is a book about risk management, about never leaving yourself too exposed financially, as a black swan event can destroy you. I take this book as a warning to pay more heed to insurance of all types, and to play my finances cautiously.
This book made me question even more who I take my financial advice from. Clearly some people will be successful due to nothing more than luck, but because they have the trappings of success, they will be highly influential. Just because you are rich and successful, doesn't mean you are an expert. You might just have gotten lucky so far, and The Black Swan is waiting in the wings to make its début.
Taleb criticised the books The Millionaire Next Door, and The Millionaire Mind and convincingly argues that the way the tests were done for those books do not make good statistical sense. Any plan can be questioned, and any success system can be said to only count winners and ignore losers. Taleb does not provide an alternative and only concludes that random events have a part to play in destiny. I see those books as plans for building a wealthy life, and though they are not perfect, I have found that they offer useful information. I prefer to treat life like a house architect. The things which I build may not always go to plan, but will certainly be better than having no plan at all.
So is living a random life the key to success? Well, the other day I saw 2 drunks staggering out of a convenience store. In their hands they clutched alcohol and a large quantity of lottery tickets. They were in their late forties, so their plan to get rich by playing the lottery was not working out so far. Maybe they will win the lottery but the odds are against them. Is their plan good, when their odds of victory are many millions of times against them? So, is extreme financial success random? Some of it may be, but definite financial success of varying levels can still be gained through the slow, steady, safe accumulation of wealth.
Accumulating money steadily by spending less than you earn and saving or investing the difference, is a plan that has worked for me. Sitting around all day hoping that I get lucky by some random chance has never worked. Randomness is a big part of life but there are paths in life that are less random than others. These are the paths I try to take, and my life has become more wealthy and successful as a result. If you want success, look in the mirror, make a plan, and make changes. Don't look to the stars and think your success or failure is only determined by randomness.
Taleb likes to espouse the power of luck. Well if so, then maybe he just got lucky in his trading career. In contrast, Donald Trump follows clear plans and he is one of the richest men in America. He is a billionaire, as is Mark Cuban. On getting wealthy, surely these billionaires who do not rely on luck, but make their own lives, with plans and risk controls, are the ones to listen to more than Taleb.
Success is not an accident. Following clear plans like the ones in the book "The Power of Focus" will lead to clear results. Do not be fooled by randomness. The biggest factor in success in your life is you.
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