It does not matter how frequently something succeeds if failure is too costly to bear. ( Like playing russian roulette)

Skewness Issue

Quality of a decision cannot be solely judged based on its outcome.The epic poet (Homer) did not judge his heroes by the result: heroes won and lost battles in a manner that was totally independent of their own valor; their fate depended upon totally external forces, generally the explicit agency of the scheming gods (not devoid of nepotism). Heroes are heroes because they are heroic in behavior, not because they won or lost.One cannot judge a performance in any given field by the results, but by the costs of the alternative (i.e. if history played out in a different way).

We Are Obsessed With Outcomes

The notion of path, as opposed to outcome, indicates that it is not a mere MBA-style scenario analysis, but the examination of a sequence of scenarios along the course of time. We are not concerned with what the investor's worth would be in, say, a year, but rather of the heart-wrenching ride she may experience during that period.

Stochastic processes

For an idea to have survived so long across so many cycles is indicative of its relative fitness. Noise, at least some noise,was filtered out.People tend to infer that because some inventions have revolutionized our lives that inventions are good to endorse and we should favor the new over the old.

Old Vs New Ideas

It is frequently said in the markets, Bad trades catch up with you.Mathematicians of probability give that a fancy name: ergodicity. It means, roughly, that (under certain conditions), very long sample paths would end up resembling each other.

Ergodicity

Over a short time increment, one observes the variability of the portfolio (variance), not the returns. Our emotions are not designed to understand the point. We think with our emotions and there is no way around it.It serves better to check portfolios at sufficiently large intervals to avoid letting your emotions take the driving seat.

How Often Should We Check Our Portfolio ?

A negative pang is not offset by a positive one (some behavioral economists estimate the negative effect to be up to 2.5 the magnitude of a positive one). It leads to an emotional deficit.

Negative Vs Positive Emotions 

If I am going to be forced to eat pork, it better be of the best kind.

I can use data to disprove a proposition, never to prove one. I can use history to refute a conjecture, never to affirm it.There are only two types of theories1. Theories that are known to be wrong, as they were tested and adequately rejected.2. Theories that have not yet been known to be wrong, not falsified yet,but are exposed to be proved wrong.

Falsifiable Vs Verifiable

There is no rational reason to keep a painting you would not buy at its current market rate.

Emotional Investments

One of the most influential book of our times.

Fooled by Randomness is a standalone book in Nassim Nicholas Taleb’s landmark Incerto series, an investigation of opacity, luck, uncertainty, probability, human error, risk, and decision-making in a world we don’t understand. The other books in the series are The Black Swan, Antifragile, Skin in the Game, and The Bed of Procrustes. Fooled by Randomness is the word-of-mouth sensation that will change the way you think about business and the world. Nassim Nicholas Taleb–veteran trader, renowned risk expert, polymathic scholar, erudite raconteur, and New York Times bestselling author of The Black Swan–has written a modern classic that turns on its head what we believe about luck and skill. This book is about luck–or more precisely, about how we perceive and deal with luck in life and business. Set against the backdrop of the most conspicuous forum in which luck is mistaken for skill–the world of trading–Fooled by Randomness provides captivating insight into one of the least understood factors in all our lives. Writing in an entertaining narrative style, the author tackles major intellectual issues related to the underestimation of the influence of happenstance on our lives. The book is populated with an array of characters, some of whom have grasped, in their own way, the significance of chance: the baseball legend Yogi Berra; the philosopher of knowledge Karl Popper; the ancient world’s wisest man, Solon; the modern financier George Soros; and the Greek voyager Odysseus. We also meet the fictional Nero, who seems to understand the role of randomness in his professional life but falls victim to his own superstitious foolishness. However, the most recognizable character of all remains unnamed–the lucky fool who happens to be in the right place at the right time–he embodies the “survival of the least fit.” Such individuals attract devoted followers who believe in their guru’s insights and methods. But no one can replicate what is obtained by chance. Are we capable of distinguishing the fortunate charlatan from the genuine visionary? Must we always try to uncover nonexistent messages in random events? It may be impossible to guard ourselves against the vagaries of the goddess Fortuna, but after reading Fooled by Randomness we can be a little better prepared. Named by Fortune One of the Smartest Books of All Time A Financial Times Best Business Book of the Year

Fooled by Randomness Summary

10

KEY
IDEAS

Fooled by Randomness Summary

10

KEY IDEAS

KEY
IDEAS