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118 of 124 people found the following review helpful
5.0 out of 5 stars An antidote to clueless gurus
I was ambivalent about this book when I picked it up, but was quickly gripped and had to read to the end.

This book is about the Illusion of Control on a massive scale: a refusal to acknowledge blind luck's contribution to our success. Taleb is a trader as well as a scholar, and mixes his logical points with many tales about the "Masters of the Universe":...
Published on 4 Sep 2007 by Dr. M. L. Poulter

versus
60 of 63 people found the following review helpful
3.0 out of 5 stars Froth and noise debunked by an experienced market practition
If you have ever listened to economists, analysts, or other supposedly intelligent commentators and wondered is it just you or are they really talking complete rubbish, then this book is for you. Taleb has produced a witty, informed, and entertaining book that debunks much of what passes for analysis and success in financial markets.
Taleb has a clear admiration for...
Published on 10 Feb 2002


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118 of 124 people found the following review helpful
5.0 out of 5 stars An antidote to clueless gurus, 4 Sep 2007
By 
I was ambivalent about this book when I picked it up, but was quickly gripped and had to read to the end.

This book is about the Illusion of Control on a massive scale: a refusal to acknowledge blind luck's contribution to our success. Taleb is a trader as well as a scholar, and mixes his logical points with many tales about the "Masters of the Universe": traders who, with a run of successful investment, become rich, promoted and profiled in Fortune magazine. Given the huge numbers of people who become traders, the number of these high-flyers is pretty much what you would expect by chance. The logical conclusion is that there is no evidence that any of these traders have any real skill, or that any of the investment advice given by gurus and journalists has any value. This contrasts with other walks of life where skill and practice are necessary: you couldn't become a concert pianist by blind luck, for example.

Yet the finance industry refuses to acknowledge this. Noise (the natural volatility of the market) is mistaken for signal (understandable and predictable responses to events), and hence pure luck is mistaken for skill. When the hot-shot trader loses all his money, and is escorted from the building by security, it comes as a total surprise to him.

Embarrassingly for his targets, Taleb is not advancing some daring new theory. He just uses probability theory, basic statistics and a knowledge of the psychological research on biases: the toolbox of an informed critical thinker. He shows how professionals in finance, the media and even academia repeatedly fail to use these basic tools: ignoring probabilities, drawing bold conclusions from minuscule evidence, or focusing on probabilities but ignoring values of outcomes

Just as research on bias overlaps research on human happiness, the book also discusses how we can be more happy by exposing ourselves to less information. Far from a whimsical speculation, this is backed up by a clever mathematical/psychological argument.

Taleb's writing style will grate with some people (his favourite topic is clearly himself) but others will find it a very personal and engaging voice. It's an intellectual rather than scholarly book (Taleb mentions a great deal of scientific, philosophical and literary influences, but is not very concerned to back up each claim with citations) but this won't be a problem for most readers.
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60 of 63 people found the following review helpful
3.0 out of 5 stars Froth and noise debunked by an experienced market practition, 10 Feb 2002
By A Customer
If you have ever listened to economists, analysts, or other supposedly intelligent commentators and wondered is it just you or are they really talking complete rubbish, then this book is for you. Taleb has produced a witty, informed, and entertaining book that debunks much of what passes for analysis and success in financial markets.
Taleb has a clear admiration for Physics and adopts a physics approach. He dives right into the heart of the problem, finds the essential truth - that markets are random, the path we observe is only one of many, and that we cannot make proper assessments on trading strategies until a sufficient time-period has elapsed to give a significant sample which includes those rare but headline-making events that occur from time-to-time. He picks out several consequences of this phenomenon. The main one is Survivorship Bias (that those experiencing good fortune at picking the right investments will be elevated to guru status, until one of those rare but extreme events removes them from their pedestals). There are many other useful insights here; how the shorter the time-scale we use to study performance the more noise we see; how journalists comment on the one random outcome we observe and interpret it as significant news; how pseudo-science has spread to all sorts of unsuitable areas; and how groups of traders form collective opinions which defy rational analysis (the so-called "fire-station" effect); how lucky traders become all puffed-up with their own success, and the link to Seretonin levles and evolutionary benefits of being able to identify winners in competitions. This entertaining section gives compelling reasons for sharing Taleb's scepticism about much of the modern financial world.
Physics, however, has difficulty providing a complete explanation for any system more complex than a single particle. Real problems benefit from a more all-round approach, or a more heuristic analysis. Taleb's single parameter analysis of success in financial markets and the behaviour of participants and institutions soon runs into contradictions and problems. He frequently talks about "good traders" and "bad traders", but sees this only in terms of buying low-probability events which he insitst are universally undervalued, and gives pseudo-real case histories of bad traders who blew up buy selling these lo-probability events. Yet he also comes up with a list of distinguishing features of bad traders; so could a bad trader become self-aware and learn to become a good trader, but still sell low-frequency extreme events? Is anyone who buys extreme events a good trader? More analysis is needed here to give a water-tight case.
When discussing bubbles such as the recent tech-stock bubble, Taleb's single variable explanation misses a whole dynamic. Everyone knew it was a bubble that would burst, yet many made money from buying into it, and some who held out against going into it at lost their jobs. The mass-psychology that sucks so many people into bubbles against their better judgement is a fascinating subject. There is much that can usefully be said, and now would be a good time to say it, but it isn't said here.
Elsewhere, Taleb's explanations also fail to enlighten as much as they might. The influence of randomness in medical research and medical practise is mentioned briefly, and the use of statistics in the legal profession gets a mention as well. There are many legal cases where statistical arguments have formed the basis of judgements and mis-judgements, from the Dreyfus case right up to the Sally Clark case in the UK today, yet all we get is a couple of throw away-examples from the O.J. Simpson trial. Perhaps if Taleb had spent less time reading high-society gossip pages and a bit more time researching his arguments he might have produced more significant arguments here.
Taleb has written a useful, readable, and thought-provoking book. Reading it is probably a better use of your commuting time than reading the Wall Street Journal. Yet the book ultimately disappoints because Taleb is neither original enough to fill an entire book with his musings and thoughts, nor diligent enough to give a properly researched presentation of his case.
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6 of 6 people found the following review helpful
3.0 out of 5 stars Very mixed views, 26 May 2009
This book is a book of contrasts. I find myself agreeing with many of the views both positive and negative of the other reviewers of this book.

On the plus side, the book's main argument is very interesting and is fairly compelling. The essential idea is that the role of randomness in events, especially in financial endeavours is largely random and has very little if anything to do with skill. The effect of this idea is far reaching, and affects many areas not the least of which is executive pay; if the fortune of companies is due in large part to luck (rather than the CEO's skills) then how can their pay levels be justified. Likewise with stockbrokers etc.

On the minus side the writing style is very difficult. I don't mean the vocabularly and grammar but rather the strcuture of the book. Often at the end of a chapter the reader is left struggling to remember how (apart from in a very indirect sense) a chapter relates to the central argument and why it has been placed at that point in the book. The whole book is largely unstructured and hard to remember in any detail reading more like a series of unconnected anecdotes.

This is a great pity as the author is clearly onto something here and were it not for the above problem I would add it as a lifechanging book. Maybe Mr Taleb will write us a new, shorter, conciser and consequently much more persuasive book!
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5 of 5 people found the following review helpful
4.0 out of 5 stars All I need is the beef, 2 Oct 2002
By 
Aron Palmer "ap" (UK) - See all my reviews
(REAL NAME)   
As someone who agrees with the Amazon reviews of Nassim's "Dynamic Hedging" that if there's a better book on options trading I haven't read it, I was immensely looking forward to reading "Fooled by randomness". It is however a very different book. Rather than the technical detail of the earlier book, this is more the personal musings of a trader. A collection of anecdotes, quotes and personal thoughts tied together with a few ideas from statistics. It did remind me of his quote in the previous book "I hear you are giving a 4-day seminar on hedging exotic options. Can you give it to me during lunch time tomorrow? All I need is the beef. You see I don't have patience for the details". The book also has agendas, it seems Nassim wants to show that rich traders / successful companies etc. may be just lucky without the converse that poor traders etc may be just unlucky. It also forgets one of the themes of his earlier book about the optionality of being a trader. As a trader other peoples money five years of big profits followed by blowing it all and some more in the sixth year is not a disastrous strategy (the disaster is losing your own money, or being a bank with a trader like this). The "Black Swan" or exceptional event that runs through his book (and which he bases his trading on apparently) could be that there are no "Black Swans" (though I doubt it, particularly at the minute!) The anecdotes and quotes are enjoyable, though I felt there weren't really enough of them to feel quite sated.
All in all an enjoyable read (I read it in a day) but a bit lacking in beef. Not in the same league as "Dynamic Hedging".
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40 of 43 people found the following review helpful
4.0 out of 5 stars Humour and wisdom, 26 Aug 2007
By 
William Cohen (London) - See all my reviews
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I was hesitant about buying this book because I thought it might be a technical book about trading. It isn't. It reminded me of Fred Schwed's, Where are all the customers' yachts? - a humorous look at human folly in the media and the world of investments. There's a little bit of Northcote Parkinson, P J O'Rourke and maybe a little of Montaigne in there, too.

I liked the fact that Taleb recommends not reading newspapers or watching TV news, I like his anti-corporate dandyism, too. He makes a sweeping statement about how self-help books don't work, which I didn't agree with, particularly because I think this book is a rather smart and elegant self-help book written by a very funny guy.

I work as a speechwriter and this book is crammed full of colour that can be recycled for that kind of exercise. If you don't use it for that it will liven up your dinner-party conversation.
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35 of 38 people found the following review helpful
5.0 out of 5 stars Managing Unpredictable Variations in Order to Prosper!, 19 Sep 2001
By 
Donald Mitchell "Jesus Loves You!" (Thanks for Providing My Reviews over 124,000 Helpful Votes Globally) - See all my reviews
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Every person who is interested in investing should read this book!
In investing, few can tell the difference between being lucky and smart. Being successful in the short term can come from either source. If it is coming from unrecognized sources of luck, however, the behavior that the investor associates with success can sink the ship. The cautionary tale of Long Term Capital Management is cited in the book as an example of this point. "If you're so rich, why aren't you smart?" is the wonderful reversal here on the old saw.
I see this effect all the time in my consulting practice with helping companies understand how their decisions affect their stock price. A large percentage of people feel that they know all the answers when their stock price is rising. They keep doing the same things when the stocks are falling. Few survive to still have top jobs when the cycle shifts again. Then a new group of self-confident people take over who often don't know any more than those who preceded them. It's just that their track records look better.
Fooled by Randomness will help make you more knowledgeably humble about what you can expect to accomplish with investments. Not only do fewer than one percent outperform the market averages over long time periods, the ones who do are probably often being aided by luck as well. "Get thee to the index funds as soon as possible" is the message that most should take away from this book. Better yet, buy them when multiples are low!
The book's fundamental point is that there is tremendous volatility in any investment. Ignore that volatility to your peril.
At the same time, you should be cautious about how well you understand the volatility. Stocks at their lows can still go to zero. There are all kinds of events that can happen, that have not done so yet. When they do, throw out all the old rules of investing. The terrorist attacks on the United States last week are probably an example of this. So each investment must be made as though you could be totally wrong. This means that you have to manage your risk exposure to events you don't even know how to expect.
I loved his example of the joint probabilities of having a rare disease if you get a positive result on a test for that disease. Even most doctors apparently don't know how to evaluate that one. If even well educated people cannot quantify two known risks occurring simultaneously in their own field, how can investors be expected to make good decisions?
Dr. Taleb has some very good advice for how to handle the psychology of being able to do this. He upholds the Stoic ideal -- "the attempt by man to get even with probability" which encourages "wisdom, upright dealing, and courage." This means not chasing the latest investment fad or fashion, not looking at your investments very often, and being open to both sides of any idea (it could go wrong as well as right --what are the consequences of both?). I especially liked his idea of watching CNBC with the sound off so that the "experts" seem humorous and you are less likely to hear and follow their advice. Even more poignant was his advice not to live on Park Avenue where living with all of the arrogant, temporarily lucky can make you feel small. Instead, live somewhere that the results of your cautious approach will cause you to be the envy of all.
Dr. Taleb impressed me with his willingness to tell stories on himself about how quickly he can become superstitious when things are going well, take on excess risks, and start looking too short term. After all, we are only human!
The importance of this book can only be appreciated if you go back and think about your biggest investing successes. How much was luck versus skill? A good way to test is to see if the same approach has continued to work for you whenever you use it. Another good test is to see how often it would have backfired in the past.
In my research on good decision making, I find that those who guard the downside first make the most money in the long run. They are able to find ways to get the best of both worlds!
Remember that the two-edged sword can cut in either direction!
Donald Mitchell...
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5 of 5 people found the following review helpful
3.0 out of 5 stars Not bad, but not impressive, 25 Aug 2008
If you nkow the basics of statistics, you'll find nothing new and amazing in this book. However it is a time passing reading and gives the opportunity to remind you of the things you normally attribute to ability and skill. Sometime we tend to overstimate people. I think it is well worth the money of a paperback. One star less for no new discovery and one star less because he considers himself the only one enlightened.
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20 of 22 people found the following review helpful
4.0 out of 5 stars Statistical Karma will get you in the end, 7 Oct 2007
Any book that stimulates the mind, leaving you thinking about the content for a long time after reading, is a worthy read even if its tone, message or style is not always appealing and this is such a book.

One trader makes large profits from his trading decisions three years in a row, is considered highly skilled in his profession and is financially rewarded. Another trader makes a loss and loses his job. Nassim Taleb argues that the difference could be more due to luck than talent and that in business and life in general people have a tendency to provide cause and effect explanations to what are in reality random events.

Taleb comes across as the rebellious anti-establishment statistician, showing his disdain and frustration at the abuse of statistics and logic that he sees in the world around him. He describes the many flaws in the mathematical and logical reasoning used by the 'experts'. This book illustrates many ways that misuse of statistical models and logical inference can lead to inaccurate conclusions and promote the unworthy to stardom. The misconceptions are presented in an entertaining, easy to read manner and while many of the underlying statistical concepts are not new and may even appear to be common sense, the point made is that the human brain is not necessarily programmed to apply them naturally in the real world.

There is a frustrating element to the book in that it raises more questions than answers. Assuming the biases and inaccuracies in stock market modeling do exist, then there is a lack of practical suggestions on how to react to this or benefit from this. There is a danger here of promoting academic purity over real world pragmatism, the statistical models and tools used may not be perfect but what is the alternative apart from flipping a coin?

Taleb does hint at a successful options trading method he uses to exploit biases in stock market decision making models yet he never elaborates. Such claims could be treated with skepticism. For example, if rare events are so rare that one cannot quantify their probablity or impact, how can one accurately assess the best method to profit from them?
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2 of 2 people found the following review helpful
3.0 out of 5 stars Disjointed but topical, 14 Mar 2009
By 
M. Hillmann "miles" (leicester, england) - See all my reviews
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In 2007 I had read Taleb's The Black Swan. A black swan event is a highly improbable event which is unpredictable , has massive impact and after it has happened, our desire is to make it appear less random and more predictable than it was. Why are we unable to estimate risk? We simplify, narrate and categorise.
With the meltdown in the world financial system I felt drawn to reading Taleb's Fooled by Randomness written before the meltdown but in a way predicting it.
His main idea is that probability is not mere computation of the odds - it is the acceptance of the lack of certainty in our knowledge and developing methods for dealing with our ignorance. He attributes far more to luck than is generally credited and considers how we perceive luck. He focuses on how we attribute causes to outcomes - so just because two things happen so we believe that one causes the other. He accepts that skills count, but they count less in highly random environments than they do in dentistry. Nowhere is this more obvious than in the markets where we hear an entrepreneur has vision or a trader is talented. Taleb reckons their performance is often more down to chance rather than skill.
They then blindly follow a rising market or a booming trend without covering their downside in the event of a random unpredicted set of circumstances, so that they end up exposed to much greater loss than their accumulated gains. Proven by recent events??
Taleb prides himself on being an awkward iconoclast and spoils the book by his arrogance and sweeping and disdain of whole swathes of people. I dislike people who cannot respect their peers.
The book is disjointed and he introduces it as a personal essay primarily discussing the authors thoughts connected to the practice of risk taking. It is not compulsive reading but he does stimulate you to think.
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18 of 20 people found the following review helpful
4.0 out of 5 stars All I need is the beef, 2 Oct 2002
By 
Aron Palmer "ap" (UK) - See all my reviews
(REAL NAME)   
As someone who agrees with the Amazon reviews of Nassim's "Dynamic Hedging" that if there's a better book on options trading I haven't read it, I was immensely looking forward to reading "Fooled by randomness". It is however a very different book. Rather than the technical detail of the earlier book, this is more the personal musings of a trader. A collection of anecdotes, quotes and personal thoughts tied together with a few ideas from statistics. It did remind me of his quote in the previous book "I hear you are giving a 4-day seminar on hedging exotic options. Can you give it to me during lunch time tomorrow? All I need is the beef. You see I don't have patience for the details". The book also has agendas, it seems Nassim wants to show that rich traders / successful companies etc. may be just lucky without the converse that poor traders etc may be just unlucky. It also forgets one of the themes of his earlier book about the optionality of being a trader. As a trader other peoples money five years of big profits followed by blowing it all and some more in the sixth year is not a disastrous strategy (the disaster is losing your own money, or being a bank with a trader like this). The "Black Swan" or exceptional event that runs through his book (and which he bases his trading on apparently) could be that there are no "Black Swans" (though I doubt it, particularly at the minute!) The anecdotes and quotes are enjoyable, though I felt there weren't really enough of them to feel quite sated.
All in all an enjoyable read (I read it in a day) but a bit lacking in beef. Not in the same league as "Dynamic Hedging".
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