Nassim Nicholas Taleb, if you read his book “The Black Swan” ought to change the filter you look at life through.
I do recommend reading Taleb’s prior effort, “Fooled By Randomness”. You can purchase it below. I think reading it first is helpful, though not necessary.
Now, onto “Black Swan”:
Taleb argues that “Black Swans”, or drastic events (to simplify it) are both unavoidable and unpredictable in life. Whether they be an assassination, accident, weather event, geopolitical event, terrorist etc., the world we live in cannot be predicted with any accuracy, save for the fact these events will happen. Again, the “when” is unpredictable.
There will be those who predict these events, but Taleb compares these to the broken clock is that is still right twice a day. There is always someone who predicts an event, it is just never the same someone.
What Taleb does is change the filter you see information through. For instance, value investors see a stock drop and think, “hmmm, let’s look closer”, growth investors see the same price action and think “run away”. Same situation, different filters (I know the above comparison is overly simplistic but I hope the basic point is made).
Taleb will change the filter of “risk” you have AND, more importantly, alter the way you look at those who predict macro events. The argument can be made, successfully, I might add, that predicting GDP or the Fed. Budget more than 6 months out is an effort in futility. Taleb argues that investing and relying on these predictions is a recipe for disaster.
For instance, a nuclear reactor melting down in Iran, shutting its oil fields would be a “Black Swan event that would throw every economic prediction made in the last two year out the window, not only for the US, but the world. Taleb says that events like that, on various scales happen all the time and make long range predictions is useless.
This was one of those books you look back on after reading and just say…..”wow”.
4 replies on “Book Review: "Black Swan"”
Taleb’s best advice is to stay away from newspapers and TV. Though I agree with him, in reality this is hard to pull off if, for example, you’re a money manager with clients because a lot of your clients are more likely than not going to be reading and watching the financial news and you need to have some idea of what’s going on in order to reassure them.
Haven’t read the book but how is any of this useful to active investors? The whole notion of a Black Swan seems to help theoretical views more so than anything practical.
What you are saying seems to go against value investing principles (and certainly any notion of contrarianism.) If one was concerned about these low-probability catastrophic events, one wouldn’t do anything. They certainly wouldn’t be looking at distressed or beatend-down investments with potentially looming disasters. They would be passive investors. Maybe ignore all media; ignore any stock picking; just hold a passive basket. Maybe that is what is being suggested. If so, it is almost useless for active investors…
Siv,
if you are a “trader” then i would say his advise does not hold much for you save for the “life lessons”.
now, if you are an insurance company or investing in one after the last two years, your expectation of the “risk” to the business may be skewed because of the inactive disaster “event” for two years.
on the other hand, he said that banks “had no idea of the risk they were exposed to” and had investors listened to him (the black swan was housing) they would have saved themselves from massive losses.
i think you’d enjoy the book
I’ll check out the book if I get some time (I have a few others I need to read–I’m just a newbie who hasn’t read some of the classics yet 🙁 )…
This is my problem: is housing really Black Swan? I would argue it is not! I would argue that many knew it was a bubble yet still kept doing the same thing. Loaning money to people who clearly weren’t going to re-pay their “mansion” purchases shouldn’t be a big surprise.
Anyway, I’m not here to diss Taleb. I’m sure he has contributed some innovative, insightful, thinking. It’s just that my impression is that it is more suitable for theoretical use rather anything any practical.
BTW, your site’s main page still doesn’t load properly in my machine (Internet Explorer, Windows Vista). I know you looked into it and couldn’t find the problem but I wonder how many readers you are losing with this bug. If someone clicks on a story, they can navigate to other stories with the archive listing on the right but otherwise you can’t really do much from the main page…