I stumbled upon this book called Fooled by randomness: The hidden role of chance in life and in markets and decided to give it a shot. As the title suggests, the book is about the role of randomness in our life and in markets. The book is written by Nassim Nicholas Taleb who is a trader and mathematics professor.
For anyone interested in financial markets and trading, it is important to understand how randomness impacts our decisions. In this book, Nassim discusses how human beings try to ignore randomness in their daily lives and look for meaning in situations that most likely don’t have any meaning. Furthermore, he discusses how people try to justify their actions by using historical evidence when that evidence can be based on pure luck. For example, if a trader posts positive results in last 8 quarters, does that make him or her an exceptional trader? Or could it be that he simply got lucky? Here is a quote from the book: “Lucky fools do not bear the slightest suspicion that they may be lucky fools—by definition, they do not know that they belong to such a category.”
The book also covers many topics about how we perceive the world as well as discusses different types of biases we face. For example, the book mentions survivorship bias which we encounter when we pick some companies and try to predict their future stock price based on historical pricing data. The issue here is that these companies are the survivors. If we want to build an accurate model for predicting prices, we need to consider all companies…many of which would have not survived for so long.
The author also discusses some other topics like:
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- the tendency of scientists to stick to their beliefs rather than admit they were wrong
- why he prefers to check news few times a week as opposed to checking multiple times a day
- knowing which feedback to take seriously and which to ignore. According to Nassim, “Unless you have confidence in the ruler’s reliability, if you use a ruler to measure a table you may also be using the table to measure the ruler.”
- our habit of blaming luck when we don’t do well but considering ourselves talented when we outperform. For example, “Remember that nobody accepts randomness in his own success, only his failure.”
- and many more…
Overall, I found the book interesting and very helpful. Nassim has a very pleasant writing style and his arguments are easy to follow. There are times when it felt like the author was repeating himself quite a bit. The book could have definitely been a bit more concise. Nonetheless, it was a pleasant read and offers plenty of useful information. You can buy the book from amazon.