I had just finished this book - Fooled by Randomness after I bought it in late 2008. Took me a year? For those who remember - i always enjoy my reads in bite sized portions.
It is about a trader using stories and his own theories (and others) to explain how people, whether we know it or not, no matter how rational we are, can get fooled by randomness. Why - because we are humans and are flawed where emotions come into play. So luck vs skills and market performance, behavioral science, noise, probability all come into play in the event of an outcome. But what part of luck, what park of skill - it the subject of his treatise. Best summarized using a Greek legislator, Solon's theory of all things being equal in the long run.... and also that it does not matter how freequently something succeeds if failure is too costly to bear.
He got me interested in probability. And it is more a science than an art. He reckons Mathematicians compute but not understand Maths and apply it in the real world. That made me think twice if I should study Maths, afterall, the curx of being a trader is the ability to know what people want, and the ability to take risks. I take small calculated risk, which is something I will strive to change this year. I would like to take greater calculated risks and not be tied to my previous thoughts. It is acceptable to do things contrary to what I have said of done before. Like George Soros. Risk sometimes pays off.
He made me question the fundamentals of "Financial Engineering" and "Markowitz theory" - as what is financial engineering and it's use in the world - apart from complicated formules to calculate future risk - Can anyone compute future risk? Are they all just moralizers? Can we just rely on formulaes to make decisions - but we live in a world ruled by human emotions.
Finance has become a greedy profession. I see button pushers, data monkeys, people driven by the allure of glamour and excessive payouts. Surely, there is another industry requiring similar skill but with better payoffs, will the excessive payouts of the banking still remain glittery in 30 years time? Is there another profession I see myself in with lower barriers of entry?
He brought up the case of O.J Simpson and without being too certain (a skill to give leeway for oneself), the odds of him not being the killer is one in a trillion trillon given of his DNA * husband of the desceased. If lawyers and the jury understood probability....
Over to the next book now!
