Luck and Randomness

Nassim Taleb further elaborates on track records of successful traders, randomness of their performance, and the role that luck plays in their lives.

Nassim Taleb says that “Lucky fools do not bear the slightest suspicion that they may be lucky fools – by definition, they do not know that they belong to such category. The will act as if they deserved the money.” Throughout the book Fooled by Randomness, Taleb equates trading successes, market timing calls, market outperformance, etc. with random throwing of darts.

Yet, Taleb’s lucky fools are quite convinced they owe their success to skills they have acquired, or good education, or infallible intuition, or keeping the proverbial finger on the market pulse. But never, and Taleb emphasizes, never will those lucky fools acknowledge their “skills” could be nothing more than exercises in randomness.

Taleb also says that successful traders are easily recognizable by their gait, the way they talk, the way they seem to float slightly above ground. Some might say this is jealousy speaking. Yet, Taleb is a successful trader himself. The only difference is that he attributes his success to the study of randomness, and not to owning a magic wand or a crystal ball.

Unsuccessful traders are just as easily recognizable. Just imagine John-the-High-Yield-Trader, standing aimlessly on the front lawn of the house he could no longer afford, and how Nero Tulip knew immediately John lost his job because his luck has run out as racked up losses caved in on him. Perhaps Nero would feel a tinge of joy seeing his neighbor suffer, if Nero were intellectually inferior and if he did not understand it was all merely the consequence of a virtuous circle transforming into the vicious circle on a whim of Lady Luck.

In my next blog, it’s time to move on to Chapter Two, in which Tale talks about alternative histories, probabilities, intellectual fraud and hypes created by journalists.