The Black Swan: The Impact of the Highly Improbable ~ Nicholas Taleb Nassim

Funk Rating: 9 out of 10

This is a chewy, serious book. I suspect reading it in short spurts before bed would be painful and you'd miss the key themes. Frankly, I tried to focus pretty hard, and I still missed 50% of it is my guess. So I'll read it again soon and re-blog it :)

That said, it's an extraordinary book. Particularly at the time when all the models for "how fixed income securities SHOULD behave" are broken and we've got market dysfunction at a high level... Nassim's point (in my mind) is simply this: don't assume because you have a rear view mirror that you can predict the future within narrow bounds, with certainty. The future is unpredictable on the edges. Many times, perhaps even most times, it will play out as you forecasted (and the better your models and the better your analysis, the increasing likelihood of being right). BUT, when you're wrong, as you will certainly be sooner or later, when there is a touch of extreme consequences of cascading errors of prediction, be darn careful about how much you can lose (or darn aggressive about how much you can win)...

This is a super book that makes you think. Nassim points out the flaw in "averages" and normal distributions. He points out that exposing yourself to upside "surprises" is smart, and controlling against downside "surprises" is also very smart. I'm sure the guys at Bear Stearns and American Home Mortgage are finding that out first hand. As well as all the folks that stretched into a new home with an ARM...

Nassim also makes some great life/balance points about (not) sweating the small and inconsequential stuff. My favorite story is about how running for trains is a bad idea. You only feel bad when you miss them. So walk, don't run, and if you miss it, enjoy the serendipity that follows. And go to parties, talk about random things, skip mass media (both print and TV), and focus on the things that are important. This is a guy that gives me rationale for all the things I want to do :)

I'd recommend you put this on your non-fiction diet of 2 books a year. It's a great book...

Comments

[steve]

You've definitely made me interested in reading this.

I've recently read 2 books that suggest that human beings have inherent cognitive limitations that limit the effectiveness of our attempts at turning past experiences into future predictions that have nothing to do with subtleties in the source data: the aforementioned Supercrunchers, and Stumbling on Happiness.

--S