TIP609: FOOLED BY RANDOMNESS

BY NASSIM TALEB

22 February 2024

On today’s episode, Clay reviews Nassim Taleb’s book – Fooled by Randomness.

Nassim Taleb is a Lebanon-born American mathematician and statistician whose work concerns problems of randomness, probability, and uncertainty. He’s very well known for his popular books, including The Black Swan, Antifragile, Skin in the Game, and Fooled by Randomness.

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IN THIS EPISODE, YOU’LL LEARN:

  • The role of luck in investing.
  • Biases that get investors into trouble, such as the survivorship bias and the endowment effect.
  • Why we should develop a sense of skepticism and humility.
  • Why it’s so important to understand alternative histories.
  • Why humans are more prone to make investment decisions based on emotions rather than facts and probabilities.
  • The story of a trader who got married to his positions which ended up being a value trap.
  • What the firehouse effect is.
  • How Taleb’s investment strategy capitalizes on asymmetric opportunities.
  • What chaos theory is.
  • Distinguishing a good process from a good outcome.

TRANSCRIPT

Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

[00:00:00] Clay Finck: Taleb is also fairly well known for his books titled The Black Swan, Antifragile and Skin In The Game, and Taleb. He’s really essentially devoted his entire life to immersing himself in these problems of luck, uncertainty, probability, and knowledge. So during this episode, I’ll be touching on the role of luck in investing.

[00:00:21] Clay Finck: Biases that get investors into trouble, such as survivorship bias and the endowment effect. Why we should develop a sense of skepticism and humility, the need to understand alternative histories, Taleb’s personal trading strategy, distinguishing a good process from a good outcome and much more. I enjoyed going through this book, and I’m so excited to share these lessons with you today.

[00:00:43] Clay Finck: With that, I hope you enjoy today’s episode.

[00:00:49] Intro: Celebrating 10 years. You are listening to The Investor’s Podcast Network. Since 2014, we studied the financial markets and read the books that influenced self-made billionaires the most. We keep you informed and prepared for the unexpected. Now for your host, Clay Finck.

[00:01:15] Clay Finck: Alright, so diving right in here as the title suggests, Fooled by Randomness, it really gave me an appreciation for the amount of randomness in financial markets and how markets might be a little bit noisier than we might realize. I. It’s also a great read to really better understand investor psychology and how we can fool ourselves into making bad bets in the markets.

[00:01:37] Clay Finck: Taleb has watched many traders get blown up due to overconfidence, taking excess risk and ignoring what the market is trying to tell them. The tricky thing about financial markets is that it’s really difficult, if not impossible, to distinguish luck from skill. If you have a hundred thousand people trying to invest successfully, it’s no wonder that one of them will happen to turn out like Warren.

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