In an earlier post, I profiled a “technical” market analyst who claims he can predict stock market movements based on a mathematical sequence called the Fibonacci progression. (See below for a details.) I opined (as would most) that his recent success derived more from coincidence than prescience.
I have since delved into the work of Nassim Nicholas Taleb, a trader-turned-philosopher, which addresses just this point. Taleb, author of the best selling The Black Swan and Fooled by Randomness, has made a career (and recently, some fame and fortune), on debunking investors’ assertions that they can predict movements in financial markets. Taleb believes not only that “technical” analysis does not hold up over time (else people would learn the technical signs divining market movements and jump in front of them, thereby changing the very technical signs they hope to use to their advantage). He further asserts that most successful traders’ success (particularly the hottest traders at any time, “technical” or not) derives more from luck than from ability. Taleb believes we are biologically ill-equipped to understand randomness, and so underestimate its role in our triumphs (while overestimating its role in our failures).
There is much appealing about Taleb’s work. In Fooled by Randomness he points out many ironies about life you may recognize from time to time but quickly forget. (Journalists are not out not so much to impart information as to entertain; corporate executives often are chosen as much for their presentation skills as for their business acumen; finance professionals may ignore remote but catastrophic risks to juice short-term results and hence their bonuses.)
But for this observer the most entertaining portion of Taleb’s work is the introduction to Fooled by Randomness (second edition), which is both funny and representative (in a nutshell) of the broader themes of Taleb’s work.
The book itself is intelligent, witty and demonstrative of deep reading (Taleb is deeply familiar with ancient history, philosophy and medical science) but otherwise perhaps not terribly informative. It should come as little surprise to the reader that much of life is random, and that we do not have great tools for dealing with this, and never did. I am not sure I needed to read an entire book to remind myself of this.
Bottom line: If you have a Kindle, I recommend downloading the free sample, which includes the introduction. (Or, visit a bookstore and devote five minutes to the opening pages). It may reel you in, as it did me. But remember, while the book may vindicate some buried suspicions you’ve long harbored about society, it may not give you many new ones.