Monday, November 5, 2007

Book Review: Nassim Taleb’s Fooled by Randomness

I’m currently reading Nassim Nicolas Taleb’s book Fooled by Randomness: How Chance Influences Life and the Markets. I picked it up because both chance and the markets are subjects that interest me. It also seemed to reflect some of my thinking, that a lot of what we see going on in the stock market is noise and random variation with very little meaning.

My first comment is this: if you’ve ever wanted to suffocate in the ego of an emotionally-stunted misanthrope, then this is the book for you! It’s difficult for me to overstate what an objectionable presence this man Nassim Taleb must be in person, and how loathed he must be by those around him. The ironic part is he seems completely unaware of this, decrying the behavior in others that he manifests so clearly in his writing.

In short, the author is an ass. Having said that, he does have some interesting things to say. In order to save you exposure to him, though, I’ll sum them up for you:

-Journalists suck.

-Success by traders is solely because random chance demands there be some successful traders. None of them have any skill. Well, except Taleb and his friends; they have skill. But the rest are foolish charlatans who deserve the bankruptcy they inevitably get. We know that there’s no such thing as skill in trading because Taleb tells us it’s so.

-The end of every trading career is a spectacular blowup that costs hundreds of millions of dollars to their employers, who will have the trader escorted out the door by security guards never to be seen again. How these employers stay in business is a mystery to me. Perhaps Taleb will explain it in a future book.

-The plural of anecdote is definitely data. And unverifiable, unreferenced, uncontrolled anecdotes are the best kind. Telling these anecdotes certainly proves whatever point it is that you’re trying to make.

-Taleb hearts Karl Popper. And George Soros. And dozens of other people who he name-drops at every opportunity in a desperate attempt to make himself seem well-connected and on the “inner circle” of both high finance and deep philosophy. For all I know, he is. But he mentions everybody except his girlfriend in Canada. I still see only two people coming to his funeral, though: him and the grave-digger.

-Taleb makes conservative investments and protects himself, thus taking smaller gains to protect himself from larger losses. Why he feels this is some superhuman feat is beyond me. It sounds fairly pedestrian.

-It’s fun to beat up strawmen.

-Employ the “Cassandra Strategy.” What this means is that you should forecast failure and doom, because you can be sure that someday there’ll be failure and doom. When that day comes, you can profit from it. If it takes five or ten years; well, that’s not a big deal. You just get the added bonus of being smug for a longer period of time.

-Monte Carlo simulations rock! GIGO? Never heard of it.

-Only scientists who agree with Taleb are real scientists. All the rest are fake scientists. Ditto for philosophers, economists, theorists, and anybody else.

-If you’re not a philosopher-trader then you are worse than the navel lint of an earthworm’s parasites, living a shallow and meaningless life, and you deserve to die a painful death in the bankruptcy that will inevitably claim you.

-Did I mention that journalists suck?

I think that’s about it. In short, some interesting ideas, but wading through the author’s suffocating ego is, quite frankly, not at all worth it. A basic class in statistics and probability will do you just as well, and save you from hundreds of pages of “I am so great! I am so great! Everybody loves me, I am so great!”