Some Valuable Quotes From Nassim Nicholas Taleb

Skin In The Game by Nassim Nicholas Taleb.

I reread all of Nassim Nicholas Taleb’s books in October 2019 (except The Bed of Procrustes, which I have not ordered yet). I strongly recommend all his books, both for insights in your “everyday” life or “trading/investment” life. His books have made a huge impact on how I view the world and how I invest.

While reading I wrote down what I consider to be the best quotes from his books. Here they are:

From Fooled by Randomness (published 2001):

More generally, we underestimate the share of randomness in about anything, a point that may not merit a book – except when it is the specialist who is the fool of all fools.

————————————————————————————————————

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 a category.

————————————————————————————————————

Having seen hundreds of people enter and exit my profession (….), I have to say that those who have had a modicum of scientific training tend to go the extra mile.

————————————————————————————————————

I remind myself of Einstein’s remark that common sense is nothing but a collection of misconceptions acquired by age 18. Furthermore, what sounds like intelligent in a conversation or in a meeting, or, particularly in the media, is suspicious.

————————————————————————————————————

The opportunity cost of missing a “new next thing” like the airplane and the automobile is miniscule compared to the toxicity of all the garbage one has to get through to get those jewels.

————————————————————————————————————

The problem with information is not that it is diverting and generally useless, but that it is toxic.

————————————————————————————————————

Finally, this explains why people who look too closely at randomness burn out, their emotions drained by the series of pangs they experience.

————————————————————————————————————

My sole advantage in life is that I know some of my weaknesses.

————————————————————————————————————

The firemen effect: He had observed that firemen with much downtime who talk to each other for too long come to agree on many things that an outside, impartial observer, would find ludicrous.

————————————————————————————————————

At a given time in the market, the most profitable traders are likely to be those that are best fit to the latest cycle. This does not happen too often with dentists or pianists, because of the nature of randomness.

————————————————————————————————————

We tend to think that traders make money because they are good. Perhaps we have turned the causality on its head; we consider them good just because they make money. One can make money in the financial markets totally out of randomness.

————————————————————————————————————

In a nutshell, the survivorship bias implies that the highest performing realization will be the most visible. Why? Because the losers do not show up.

————————————————————————————————————

Alas, investors and businesses are not paid in probabilities, they are paid in dollars. Accordingly, it is not how likely an event is to happen that matters, it is how much is made when it happens.

————————————————————————————————————

So people in finance borrow the technique and ignore infrequent events, not noticing that the effect of a rare event can bankrupt a company.

————————————————————————————————————

Why is a theory never right? Because we will never know if all the swans are white (on Popper).

————————————————————————————————————

The reason I feel that he is important (Popper) for us traders is because to him the matter of knowledge and discovery is not so much in dealing with what we know, as in dealing with what we do not know.

————————————————————————————————————

……we are trained to take advantage of the information that is lying in front of our eyes, ignoring the information that we do not see.

————————————————————————————————————

Remember that nobody accepts randomness in his own success, only in his failure.

————————————————————————————————————

In other words, the number of managers with great track records in a given market depends far more on the number of people who started.

————————————————————————————————————

Causality can be very complex. It is very difficult to isolate a single cause when there are plenty around.

————————————————————————————————————

What characterizes real speculators like Soros from the rest is that their activities are devoid of path dependence. They are totally free from their past actions. Every day is a clean slate.

————————————————————————————————————

My lesson from Soros is to start every meeting at my trading boutique by convincing everyone that we are a bunch of idiots who know nothing and are mistake prone, but happen to be endowed with the rare privilege of knowing it.

————————————————————————————————————

The book ends with this sentence:

The only article Lady Fortuna has no control over is your behavior. Good luck.

————————————————————————————————————

 

From the Black Swan (published 2007):

 

Black swan logic makes what you don’t know far more relevant than what you do know. Consider that many black swans can be caused and exacerbated by their being unexpected.

 ————————————————————————————————————

The strategy for the discoverers and entrepreneurs is to rely less on top-down planning and focus on maximum tinkering and recognizing opportunities when they present themselves.

————————————————————————————————————

I don’t particularly care about the usual. If you want to get an idea of a friend’s temperament, ethics and personal elegance, you need to look at him under the tests of severe circumstances, not under the regular rosy glow of daily life… Can you assess the danger a criminal poses by examining only what he does on an ordinary day?….Indeed the normal is often irrelevant.

————————————————————————————————————

The human mind suffers from three ailments: The illusion of understanding (nobody knows what’s going on), the retrospective distortion (hindsight bias, rearview mirror logic) and the overvaluation of factual information.

————————————————————————————————————

History does not crawl, it jumps.

————————————————————————————————————

I noticed that very intelligent and informed persons were at no advantage over cabdrivers in their predictions, but there was a crucial difference. Cabdrivers did not believe that they understood as much as learned people – they were not experts and they knew it.

————————————————————————————————————

If I myself had to give advice, I would recommend someone pick a profession that is NOT scalable! A scalable profession is good only if you are successful; they are more competitive, produce monstrous inequalities, and are far more random, with huge disparities between efforts and rewards – a few can take a large share of the pie, leaving others out entirely at no fault on their own.

————————————————————————————————————

We can get closer to the truth by negative instances, not by verification!

————————————————————————————————————

Sometimes a lot of data can be meaningless, at other times one single piece of information can be very meaningful. It is true that a thousand days cannot prove you right, but one day can prove you to be wrong.

————————————————————————————————————

Similarly, the speculator George Soros, when making a financial bet, keeps looking for instances that would prove his initial theory wrong.

————————————————————————————————————

In his essay “What We See And What We Don’t See, Bastiat offered the following idea: we can see what governments do, and therefore sing their praises – but we do not see the alternative. But there is an alternative, it is less obvious and remains unseen.

————————————————————————————————————

You would expect our record of prediction to be horrible: the world is far, far more complicated than we think, which is not a problem, except when most of us don’t know it.

————————————————————————————————————

For many people, knowledge has the remarkable power of producing confidence instead of measurable aptitude.

————————————————————————————————————

The more information you give someone, the more hypothesis they will formulate along the way, and the worse off they will be, they see more random noise and mistake it for information…..Two mechanisms are at play here: the confirmation bias…and belief perseverance, the tendency not to reverse opinions you already have. Remember that we treat ideas like possessions.

————————————————————————————————————

One single institution, say, the central planner, cannot aggregate knowledge; many important pieces of information will be missing. But society as a whole will be able to integrate into its functioning these multiple pieces of information.

————————————————————————————————————

Invest in preparedness, not in prediction.  

 

From Antifragile (Published 2012):

 

Heuristics are simplified rules of thumb that make things simple and easy to implement. But their main advantage is that the user knows that they are not perfect….. and is therefore less fooled by their powers. They become dangerous when we forget that.

————————————————————————————————————

When you don’t have debt you don’t care about your reputation in economic circles – and somehow it is only when you you don’t care about your reputation that you tend to have a good one.

————————————————————————————————————

If every plane crash makes the next one less likely, every bank crash makes the next one more likely.

————————————————————————————————————

All they need is to keep their mistakes small enough so they can survive them (on reinsurance).

————————————————————————————————————

And it is not stable in spite of not having a government; it is stable because it does not have one (on Switzerland).

————————————————————————————————————

Systematically preventing forest fires from taking place “to be safe” makes the big one much worse. For similar reasons, stability is not good for the economy…..delaying crisis is not a very good idea. The longer one goes without a market trauma, the worse the damage when commotion occurs.

————————————————————————————————————

Although the stated intention of political leaders and economic policy makers is to stabilize the system by inhibiting fluctuations, the result tends to be the opposite.

————————————————————————————————————

Few understand that procrastination is our natural defense, letting things take care of themselves and exercise their antifragility.

————————————————————————————————————

You can’t predict in general, but you can predict that those who rely on predictions are taking more risks, will have some trouble, perhaps even go bust. Why? Someone who predicts will be fragile to prediction errors…..And numerical prediction leads people to take more risks.

————————————————————————————————————

My point is that wisdom in decision making is vastly more important, not just practically, but philosophically, than knowledge.

————————————————————————————————————

If a gambler has a risk of terminal blowup (losing back everything), the “potential returns” of his strategy are totally inconsequential.

————————————————————————————————————

Serious empirical investigation (largely thanks to one Lant Prichet, then a World Bank economist) shows no evidence that raising the general level of education raises income at the level of a country. But we know the opposite is true, that wealth leads to the rise of education – not an optical illusion.

————————————————————————————————————

People with too much smoke and complicated tricks and methods in their brains start missing elementary, very elementary things. Persons in the real world can’t afford to miss these things; otherwise they crash the plane. Unlike researchers, they were selected for survival, not complications.

————————————————————————————————————

Accordingly, wisdom you learn from your grandmother should be vastly superior (empirically, hence scientifically) to what you get from a class in business school. My sadness is that we have been moving farther and farther away from grandmothers.

————————————————————————————————————

Practitioners don’t write, they do. Birds fly and those who lecture them are the ones who write their story. So it is easy to see that history is truly written by losers with time on their hands and a protected academic position.

————————————————————————————————————

No, we don’t put theories into practice. We create theories out of practice.

————————————————————————————————————

A management scholar, William Starbuck, has published a few papers debunking the effectiveness of planning – it makes the corporation option-blind, as it gets locked into a non-opportunistic course of action.

————————————————————————————————————

….what I was given to study in school I have forgotten; what I decided to read on my own, I still remember.

————————————————————————————————————

If I tell you that some result is true with 95 percent confidence level, you would be quite satisfied. But what if I told you that the plane was safe with 95 percent confidence level?

————————————————————————————————————

Black Swan effects are necessarily increasing, as a result of complexities, interdependence between parts, globalization, and the beastly thing called “efficiency” that makes people now sail to close to the wind.

————————————————————————————————————

The good is mostly in the absence of the bad.

————————————————————————————————————

Cowardice enhanced by technology is all connected: society is fragilized by spineless politicians, draft dodgers afraid of poll, and journalists building narratives, who create explosive deficits and compound agency problems because they want to look good in the short term.

————————————————————————————————————

Words are dangerous: postdictors, who explain things after the fact – because they are in the business of talking – always look smarter than predictors.

————————————————————————————————————

So opinion makers who were so proudly and professionally providing idle babble will eventually appear to win an argument, since they are the ones writing, and suckers who got in trouble from reading them will again look to them for future guidance, and will again get in trouble.

————————————————————————————————————

An academic is not designed to remember his opinions because he doesn’t have anything at risk from them.

————————————————————————————————————

So the very same economist who caused the problem then postdicted the crisis, and then became a theorist on what happened. No wonder we will have larger crisis.

————————————————————————————————————

Never ask anyone for their opinion, forecast, or recommendation. Just ask them what they have – or don’t have – in their portfolio

————————————————————————————————————

If you go to the doctor, never ask the doctor what you should do. Ask him what he would do if he were in your place.

————————————————————————————————————

Never trust the words of a man who is not free.

————————————————————————————————————

The definition of the free man, according to Aristotle, is one who is free with his opinions – as a side effect of being free with his time.

 

From Skin In The Game (published 2018):

 

The knowledge we get by tinkering, via trial and error, experience, and the workings of time, in other words, contact with the earth, is vastly superior to that obtained through reasoning, something self-serving institutions have been very busy hiding from us.

————————————————————————————————————

Bureaucracy is a construction by which a person is conveniently separated from the consequences of his or her actions.

————————————————————————————————————

Decentralization is based on the simple notion that it is easier to macrobull**t than microbulls**t.

————————————————————————————————————

Decentralization reduces large structural asymmetries.

————————————————————————————————————

Regulations, while appearing to be a remedy on paper, if anything, exacerbate the problem as they facilitate risk-hiding.

————————————————————————————————————

Avoid taking advice from someone who gives advice for a living, unless there is a penalty for their advice.

————————————————————————————————————

Those who talk should do and those who do should talk.

————————————————————————————————————

Things designed by people without skin in the game tend to grow in complication (before their final collapse).

————————————————————————————————————

More critically, people with good lawyers can game regulations.

————————————————————————————————————

Whenever there is a mismatch between a bonus period (yearly) and the statistical occurrence of a blowup (say, ten years), the agent has an incentive to play the Bob Rubin risk-transfer trade.

————————————————————————————————————

Don’t tell me what you think, tell me what you have in your portfolio.

————————————————————————————————————

Let us conjecture that the formation of moral values in society doesn’t come from the evolution of the consensus. No, it is the most intolerant person who imposes virtue on others precisely because of that intolerance. The same can apply to civil rights.

————————————————————————————————————

The market is like a large movie theater with a small door.

————————————————————————————————————

Had science operated by majority consensus, we would be still be stuck in the Middle Ages, and Einstein would have ended as he started, a patent clerk with fruitless side hobbies.

————————————————————————————————————

Society doesn’t evolve by consensus, voting, majority, committees, verbose meetings, academic conferences, tea and cucumber sandwiches, or polling; only a few people suffice to disproportionately move the needle. All one needs is an asymmetric rule somewhere – and someone with soul in the game. And symmetry is present in about everything.

————————————————————————————————————

Someone who has been employed for a while is giving you strong evidence of submission.

————————————————————————————————————

To be free of conflict you need to have no friends.

————————————————————————————————————

Any form of control of the wealth process – typically instigated by bureaucrats – tends to lock people with privileges in their state of entitlement.

————————————————————————————————————

Traders, when they make profits, have short communications; when they lose they drown you in details, theories and charts.

————————————————————————————————————

It is downright unethical to use public office for enrichment.

————————————————————————————————————

One should give more weight to research that, while being rigorous, contradicts other peers, particularly if it entails costs and reputational harm for its author.

————————————————————————————————————

In any activity, hidden details are only revealed via Lindy.

————————————————————————————————————

Never hire an academic unless his function is to partake of the rituals of writing papers or taking exams.

————————————————————————————————————

..scientism looks more scientific than real science.

————————————————————————————————————

Courage (risk taking) is the highest virtue. We need entrepreneurs.

————————————————————————————————————

At no point in history have so many non-risk-takers, that is, those with no personal exposure, exerted so much control.

————————————————————————————————————


If you want peace, make people trade, as they have done for millenia. They will be eventually forced to work something out…..We are largely collaborative – except when institutions get in the way.

————————————————————————————————————

I have shown in Antifragile that making some types of errors is the most rational thing to do, when the errors are of little cost, as they lead to discoveries.

————————————————————————————————————

How much you truly “believe” in something can be manifested only through what you are willing to risk for it.

————————————————————————————————————

Not everything that happens happen for a reason, but everything that survives survive for a reason.

————————————————————————————————————

Never cross a river if it is on average four feet deep.

————————————————————————————————————

In a strategy that entails ruin, benefits never offset risks of ruin.

  •  
  •  
  •  
  •  
  •  
  •