Review: “Fooled By Randomness” by N. Taleb

{{“Fooled by Randomness”}} is a book about the negative consequences of a dynamic financial market. More specifically, the book’s focus is due to the lack of a balance criticism of the potential negative outcomes and the evaluation of performance in the market.

There are some main features of the book that could be considered to be strong points. One of them being the topic of the book, compared to the neighboring books in its genre. The book attempts to debunk the hype surrounding popular strategies as being luck rather than an effective strategy. Another strength this book accounts for is randomness. It mentions that randomness may account for many successes that individuals attribute to events. Lastly, I must commend the author for advising the reader to stay out of short term markets. Short term markets are highly volatile and are not for individuals who cannot afford a loss.

Despite the redeeming qualities, “Fooled by Randomness” has a fair amount of distracting and vexing issues. Mainly the issue is with a personal bias. The author speaks with the reader in parts of the book and brags about how everyone is foolish not to see his point of view. For example he describes a radio debate, in which the radio host is talking with him about how a market downfall caught investors who had not properly considered the risk. His retort in the book was that he had been warning “these investors” for years.  This strikes me as rather off putting and ineffectual to put in the book. Assuming he has been issuing warnings, shouldn’t one consider the lack of response as an indicator of ineffectuality’s in communication?

Halfway-through the book I started to wonder: “Who is the target audience of this book?” Earlier in the book, while he is bragging, it’s obvious that he is targeting serious day traders and employees of investment groups. However, later in the book he attempts to debunk the effectiveness of these people. For example:  For brokers he claims that the people with a history are merely people who had gotten lucky. For analysis, they were merely lucky that history had a tendency to repeat itself. For academics, their work was really only good for the time period that they were in, and that it was too little too late (complex systems researchers).  I was quite shocked about his dismissal of Complex Systems Researchers. Typically Complex Systems advocates promote the idea of randomness influencing the system, and they can account of it.

Lastly, this book leaves me with the question:

If people are able to consistently make money on the market, then how do you successfully evaluate performance? His arguments attempt to ignore performance and claim that everything is merely luck.