Fooled by Randomness, Nassim Nicholas Taleb

Think a book, whose author offends, mocks and bores its readers while he pretends he is the most clever, smart, intellectual and scientific guy in the world in each page of the book. It is not only written in a chaotic structure-- chapters, sections are not related to each other or very mixed up in terms of concepts and structure, the author also uses lots of buzzwords, redundant and wrong examples.

I am talking about "Fooled by Randomness, The hidden Role of Chance in Life and in the Market", by Nassim Nicholas Taleb. Have a look at following quote from the book:

"What has more value? (a) a contract that pays you $1 million if the stock market goes down 10% on any given day in the next year; (b)a contract that pays you $1 million if the stock market goes down 10% on any given day in the next year due to a terrorist act. "

What is your answer? a or b ? Taleb claims:"I expect most people to select (b)." I am not sure IQ level of people around Taleb, but i reckon, most people would go option a. (I know that, in a normal distrubuted financial world, %10 changes in stock market is so low probability -- once every 73 to 603 trillion billion years-- , but in last 80 years, that incident happened over 2 times and five sigma deviation is over 73 times, which happens once in 7000 years if finance data is normally distrubuted. More info is here).

Taleb is a trader and scholar, works in a fixed income (bonds) financial company. He has background in science (PhD) and like many other PhD graduate, he bored in academia after some time and started to work in finance sector. In his book, he claims that probability theory is not a natural or trivial concepts for many people to comprehend. I do agree with him in this claim. But he takes his claims further and try to establish a theory and life style based on randomness (rare events) . He claims that he is expert on random events and he takes advantages of these random events in his life and business.

He exemplifies his ideas with "fictitious" characters who works as traders in finance (fixed income or equity markets). These characters are generally quite extreme and opposite of each other. For example, he kicks off the book with stock and bond market traders. The stock market trader, Steve, does not have any sound education and a risk taker and get successful so quickly. On the other hand, the bond market trader, Bob, has a degree in probability and he does not take much risk in his business (to be honest, there is not much risk in fixed income market compare to stock market). Because of calculated and not risk taking style, Bob is not rich as much as Steve.

Taleb claims that the success of the stock market trader, Steve, is based on randomness, in another words just "luck". He claims that even if you put 10.000 monkeys in stock market as trader, and monkeys trade randomly, by the end of 5 years, there will be at least a rich monkey. He also claims that after some lengthy time (10 years), all of these monkeys will disappear (The clever one would run away when he has some money, but most of them lose all of their money before they are kicked out). Taleb has a point in analogy, i think. Similar to many aspect of life, randomness also has a part in stock market. But i think, his claims that without proper analysis, research and hard work in stock market, someone would get rich randomly is just ridiculous. He dismisses that the participant of stock markets are intelligent, agile and very adaptive people. Stock market has chaotic aspects, but not totally random. It responses a deterministic way to some events (for example, if a small company merges or bought by a big company, it's share will surge). And the job of traders is to predict (or to speculate) these events in order to make profit.

I found many so-called scientific or intellectual ideas of Talebs, especially in probability theory is very mixed up. For example, he ignores the main reason of filters in statistics or engineering (filtering outliners and noise). While he claims that he takes advantages of these outliners (randomness, noise) in his real life and business, he complaints about the source of the noise for example, media and journalist (He has issue with media, TV, papers too). He contradicts himself, and gives mixed messages in different part of the book.

In brief, in his book, Taleb comes cross as an arrogant, geek person who claims 'if you disagree with me, you're an idiot and I will ignore and laugh at you.' He wrote the book for just sake of writing a book, and before clearing and organising the ideas in his mind. His writing style and personality kills the some of his nice ideas. By the end of book, i felt big disappointment. It was worst ever book i read in a long time. Luckily, the current book in my hand ("The Ascent of Money: A Financial History of the World") , is making me to forget yucky taste of this book.