“Even a broken clock is right twice a day.”
Another great book from Nassim Taleb saying that we are often “Fooled by Randomness” – we often attribute skill or meaning to something that happened by pure chance. Life is more random than we think.
Here are a few of my key takeaways…
When are we Fooled by Randomness?
“Just as one day some primitive tribesman scratched his nose, saw rain falling and developed an elaborate method of scratching his nose to bring on the much needed rain, we link economic prosperity to some rate cut by the Fed, or the success of a company with the appointment of the new president “at the helm”… With enough variables you can link something to almost anything (i.e. Market returns in October to girl’s skirt lengths).”
Consider a group of 10,000 investment managers whose investment success is comparable to a coin toss. Each manager has a 50/50 chance of winning or losing $10,000 in any year. At the end of each year, the managers who lost are thrown out of the game. “At the end of the [first] year, we expect 5,000 managers to be up $10,000 each, and five to be down $10,000. Now we run the game a second year. Again, we expect 2,500 managers to be up two years in a row; another year, 1,250; a fourth one, 625; a fifth, 313. We have now, simply in a fair game, 313 managers who made money for five years in a row. Out of pure luck, a population entirely composed of bad managers will produce a small amount of great track records… If we throw one of these successful traders into the real world we would get very interesting and helpful comments on his remarkable style, his incisive mind and the influences that helped him achieve such success. Some analysts may attribute his achievement to precise elements among his childhood experiences. The following year, should he stop outperforming, they would start laying blame, finding fault with the relaxation in his work ethics or his dissipated lifestyle. They will find something he did before when he was successful that he stopped doing, and attribute his failure to that. The truth is, however, that he ran out of luck.”
“It’s a small world” – Last year, I ran into someone I went to school with at a night market in Northern Thailand. Our first reaction was, “what are the chances?!” However, as Taleb points out, it might be more likely than we may have thought. The chances of running into a specific person are very low; but running into someone (but not anyone in particular) that we know from our past is not as unlikely as we may think.
Noise vs. Meaning
“We are prone to the confusion between noise and meaning. Like a health club membership taken out to satisfy a New Year’s resolution, people often think that the next batch of news will really make a difference to their understanding of things. The opportunity cost of missing a new new thing like the automobile or the airplane is minuscule compared to the toxicity one has to go through to get to these jewels. If there is anything better than noise in the mass of ‘urgent’ news pounding us, it would be like a needle in a haystack… Bad information is worse than no information at all.”
“My problem is that I am not rational and I am extremely prone to drown in randomness and to incur emotional torture. I am aware of my need to be away from information, but I can only do so if I am deprived of it. If an event is important enough, it will find a way to my ear. My sole advantage in life is that I know some of my weaknesses, mostly that I am incapable of taming my emotions facing news and of seeing a performance with a clear head. I am just intelligent enough to understand that I have a predisposition to be filled by randomness and to accept the fact that I am rather emotional.”
Dealing with Randomness
“Dress your best on execution day (shave carefully); try to leave a good impression on the death squad by standing erect and proud. Try not to play victim when diagnosed with cancer (hide it from others and only share the information with your doctor – it will avert the platitudes and nobody will treat you like a victim worthy of their pity; in addition, the dignified attitude will make both defeat and victory feel equally heroic). Be extremely courteous to your assistant when you lose money. Try not to blame others for your fate, even if they deserve blame. Never exhibit any self pity, even if your significant other bolts with the handsome ski instructor. Do not complain. If you suffer from a benign version of the attitude problem, do not start playing nice guy if your business dries up. The only article Lady Fortuna has no control over is your behavior. Good luck.”
I love the ending of this book. Taleb is essentially saying that SHIT HAPPENS – a lot of random things out of your control will occur in life. However, what you can control is how you react to them.