Never be afraid to get dirty, but be sufficiently sure-footed to avoid the abyss of contamination.

Like Coffee

The radio alarm goes off, and the hypnopompic stage begins. I am only half-listening to the topics on the radio, and if nothing catches my ear, I may return to the depths of slumber. This morning, the speaker’s comments catch my ear. His name is Nassim Nicholas Taleb, and he is talking about a tendency of historians– in an effort to use the past to predict the future– to attach significant causative weight across events in history when in many cases they are simply overfitting noisy data.

A quick Google search reveals that Taleb, a Wall Street trader, recently wrote The Black Swan: The Impact of the Highly Improbable. The search also turns up a New Yorker article Malcolm Gladwell wrote about him a few years ago. An excerpt:

Despite his envy and admiration, he did not want to be Victor Niederhoffer — not then, not now, and not even for a moment in between. For when he looked around him, at the books and the tennis court and the folk art on the walls — when he contemplated the countless millions that Niederhoffer had made over the years — he could not escape the thought that it might all have been the result of sheer, dumb luck.

Taleb knew how heretical that thought was. Wall Street was dedicated to the principle that when it came to playing the markets there was such a thing as expertise, that skill and insight mattered in investing just as skill and insight mattered in surgery and golf and flying fighter jets. Those who had the foresight to grasp the role that software would play in the modern world bought Microsoft in 1985, and made a fortune. Those who understood the psychology of investment bubbles sold their tech stocks at the end of 1999 and escaped the Nasdaq crash. Warren Buffett was known as the “sage of Omaha” because it seemed incontrovertible that if you started with nothing and ended up with billions then you had to be smarter than everyone else: Buffett was successful for a reason. Yet how could you know, Taleb wondered, whether that reason was responsible for someone’s success, or simply a rationalization invented after the fact?

I’ll be sure to add his books to my summer reading list.


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