Current Book & Quotes From: "Fooled By Randomness" by Nassim Taleb
How to Become a More Interesting Human Being… With Science!
"But on occasion a fast-thinking scientific-minded person with street smarts would emerge. Whatever the benefits of such population shift, it improved our chess skills and provided us with quality conversation during lunchtime—it extended the lunch hour considerably. Consider that I had in the 1980s to chat with colleagues who had an MBA or tax accounting background and were capable of the heroic feat of discussing FASB standards. I have to say that their interests were not too contagious. The interesting thing about these physicists did not lie in their ability to discuss fluid dynamics; it is that they were naturally interested in a variety of intellectual subjects and provided pleasant conversation.”- Nassim Taleb, Fooled By Randomness
The highest level science class I ever took was a Biology class in high school. I remember hating all the science classes that school had to offer me. Occasionally I would hear the teacher spout some bit about the universe or some evolutionary concept that I found intellectually stimulating, but for the most part, I hated it.
I do not, however, have a hatred for science itself. Since those school days, I have come to love science. Studying various concepts about the universe, evolution, etc. are now some of my favorite pastimes and some of the most enjoyable ways to satisfy my curiosity.
There are many people that I respect for their scientific ways of thinking. I’ve found that these same people are very interesting to have a conversation with. Their knowledge tends to stem far out from just science.
So if there’s one takeaway you can get from this post, it is to be a little scientifically curious. Find some piece of science that excites your mind and jump down the rabbit hole on it. You may find that it lights a fire of curiosity within you and ultimately, it will lead to making you a more interesting and intelligent human being.
Hindsight Bias and Intuition
"Clearly, this idea of alternative history does not make intuitive sense, which is where the fun begins. For starters, we are not wired in a way to understand probability, a point that we will examine backward and forward in this book. I will just say at this point that researchers of the brain believe that mathematical truths make little sense to our mind, particularly when it comes to the examination of random outcomes. Most results in probability are entirely counterintuitive;we will see plenty of them."- Nassim Taleb, Fooled By Randomness
I’ve discussed the idea that Taleb presents known as alternative histories in a previous reading highlights post. It’s a fascinating idea. One that applies to you and to me, no matter what path we are on in life.
When we examine history, we typically look at the result and then read the historical events. Hindsight bias and many other biases come into play here. Our intuition will actually lead us astray in our examination of past events.
For example, if we are trying to learn how to invest in crypto markets and be successful at it, examining history and historical price action alone will not teach you much.
You have to learn at a far deeper level than that. You have to examine the emotions and the present-state awareness of the various time-points in the history that you’re examining. When you look back on past events and already have the knowledge of how the story ended, then you approach it with a warped mindset. Many investors, regardless of which market they operate in, suffer from this type of hindsight bias!
Understand Your Biases
"I do not dispute that arguments should be simplified to their maximum potential; but people often confuse complex ideas that cannot be simplified into a media-friendly statement as symptomatic of a confused mind. MBAs learn the concept of clarity and simplicity—the five-minute-manager take on things. The concept may apply to the business plan for a fertilizer plant, but not to highly probabilistic arguments—which is the reason I have anecdotal evidence in my business that MBAs tend to blow up in financial markets, as they are trained to simplify matters a couple of steps beyond their requirement. (I beg the MBA reader not to take offense; I am myself the unhappy holder of the degree.)"- Nassim Taleb, Fooled By Randomness
Something that I love about Taleb’s writing is that he so clearly questions himself and every idea that comes his way. He’s acutely aware of his own biases and this gives him a great power. It gives him the power to understand the way his brain operates and “steer” it in the right directions.
The majority of people believe that if you want to be successful, you must get a college education and then get some really great job and then work your way up the corporate ladder and then one day, you can retire with bucket loads of money.
This way of thinking was the way of thinking in which I was raised. I was raised to believe in this idea of “getting educated” by getting a business, engineering or medical degree of some kind.
What I have come to realize, as I have grown up and went to college for 1 year and then dropped out, is that success has nothing to do with your formal education. In fact, depending on what you want to do in life, going to college can actually be detrimental to your success.
In my opinion, I’m in the category of people who would actually lose by going to college. I would lose not only money and time spent on college itself, but I would also lose my skeptical and counter-culture mindset. The world is moving so fast and schools have failed to innovate forwards and keep up with the times.
If you want to truly master your life and put yourself on the path to success and happiness - however you may define it - then you must self-teach and learn things for yourself. You must seek to understand the way your own brain operates, its biases, its shortcomings, etc. Only you can really learn such things about yourself, they cannot be taught.
"In a now famous experiment they found that the majority of people, whether predictors or nonpredictors, will judge a deadly flood (causing thousands of deaths) caused by a California earthquake to be more likely than a fatal flood (causing thousands of deaths) occurring somewhere in North America (which happens to include California). As a derivatives trader I noticed that people do not like to insure against something abstract; the risk that merits their attention is always something vivid.”- Nassim Taleb, Fooled By Randomness
This really tied a lot of things together for me for this chapter of the book. The core idea that Taleb is getting at is the fact that our brains are wired to detect the more specific and vivid risks.
We tend to focus on the specific risks and events that have happened in the past or that may happen in the future. A deadly flood in California is far more likely than a fatal flood in North America. The abstract seems to pass right through one ear and out the other.
When you try to apply this concept to crypto, you get some fascinating conclusions. In a bear market, the attention of the masses is centered around the constant FUD and crazy news articles that always come out declaring that Bitcoin is dead and what-not.
In a bull market, the attention of the masses becomes focused on the FOMO and the crazy news articles that showcase Bitcoin lambos and moon mansions and all other forms of excessive wealth with little effort. Then everyone tries to jump on the train that they believe is leaving the station.
The more abstract idea is that you ought to think counter to what these masses are doing. When they are buying into the FUD stories and offloading their portfolio or begin thinking that crypto is dead, that is the time to buy up and HODL. When they are buying into the FOMO stories and trying to jump on board the crypto train like their life depends on it, then you ought to consider taking some profits off the table.
This counter-masses way of thinking is always easy in hindsight. Just imagine how much money you would’ve made had you bought crypto in early 2017 and then sold it in December of 2017. You would’ve bought when people didn’t care and then sold when people cared too much.
Do you have a plan for your crypto investing future that will help you overcome your bias and tendency to focus on the wrong things?
My answer to this is yes. I have a plan. I have already written down the very specific entry and exit points that I will adhere to in the future.