personal finance

As other reviewers have pointed out, this book is not a trading manual. If you are looking for usable market techniques, look elsewhere. However, for those with a classical bent, who enjoy the history of ideas and occasionally even wonder about topics more metaphysical than where the Dow closed today, this is a nice read. Mr. Taleb selects a few lessons from probability theory as applied to the markets, and illustrates them with characters drawn (presumably) from his own life or from his considerable literary knowledge. We learn, for example, why if we watch our portfolios too closely we may be unhappy even with a winning record, why working hard to get that home in the best neighborhood may make our lives miserable, and how our best hope against the depredations of Fortune is personal dignity. Read this for perspective, not portfolio advice.

For all its elegant prose and unwelcome insights into the author's personality, Fooled By Randomness has a simple message at its core: Do not confuse the unlikely event with the impossible event, or, approximately in other words, the Black Swan theory. Indeed, blowups in financial markets are not as rare as they seem and they wreck disproportionate damage. Also, do not discount the role of luck in the financial market or in other spheres of life.

The book is almost semi-autobiographical in nature. Taleb writes very well and makes references to diverse intellectual arenas and personalities. He also provides insightful examples to illuminate the points he is making. He would likely provide excellent company if one were in the mood to ruminate about the markets or the role of chance in our lives. The book is an interesting and worthwhile read, and this reader highly recommends it.

I really wanted to like this book because the it discusses an important topic. The role of randomness in our everyday lives versus our innate (lack of) capacity to deal with it without careful education is one that we need to talk about more in the popular culture. However, the problems with this book are several. Its casual and meandering exposition is supposed to make it more accessible, but it actually makes it harder to come to terms with the topic.

Also, Mr. Taleb is a bit difficult to warm to, although there are occasional flashes of wit and humor that help. For example, he is so proud of his personal achievements that he both disparages them (he is ashamed of his Wharton MBA), and uses them as proof of his superiority of almost everyone (he read a lot at the library). He also has some strange peccadilloes such as his passionate and disproportionate dislike of George Will because he interviewed Robert Shiller (Taleb's friend and author of "Irrational Exuberance") in a rather feckless manner.

In the second half of the book he does explain some interesting phenomena about human psychology and randomness in interesting ways, but he goes completely overboard on certain points. On page 173 he states that Khaneman and Tversky have exerted the most influence on economic thinking in the past 200 years. Come on! Name any major economics department that has become behaviorist in any major way. (Taleb might find such resistance to acceptance a proof of concept - but people weighing evidence seriously would find it a chink in Talebs case.

I think the reality is that what Taleb points to is important and does exist, but that it is something like a second order effect in the big scheme of things. It may matter an extreme amount in the narrow world of options trading where Taleb indicates he lives, but for most of us it is a minor issue. Not one of no consequence, but not a determinative effect in the broad sweep of our lives.

So, I continue to look for a really good book on this topic. If you know of one, please email me with information about the book.