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posted: May 11, 2025
tl;dr: Taleb’s iconoclastic thoughts on investing and other areas of life...
I enjoyed Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets by Nassim Nicholas Taleb, but this may be because Taleb’s thinking on many subjects aligns with my own. The basic thesis of Fooled by Randomness is that outcomes in some professions, such as investing, exhibit a potentially high degree of randomness. Those who outperform the markets for a while are often thought of as skillful and compensated accordingly. But they often experience a comeuppance when unforeseen and unhedged events go against them. In fact Taleb’s second-hand examples of this are some of the most amusing parts of the book.
Taleb does not explicitly describe his investing methodology in the book but it can be deduced from what he says. He believes in hedging, which amounts to purchasing insurance to protect against the downside when markets go against the primary position. This necessarily lowers Taleb’s returns when markets behave in a predictable manner: unhedged investors do not have the hedging expense. But when markets go awry, the unhedged investors can be wiped out, whereas some of Taleb’s hedges may pay off spectacularly. Taleb is content to underperform during normal times in the hope of profiting handsomely during turbulent times. One of his motivations, he says, is to spend as little time as possible fretting over his investments in order to pursue intellectual, aesthetic, and culinary activities.
I don’t follow Taleb’s investment strategy. Even though Taleb wants to spend as little time as possible on his investments, he still spends more than I do, given that I work a fulltime job in a completely different profession. I am unhedged, but I focus on safer, less volatile long-term investments that hopefully don’t need hedging. Still, I can appreciate what he does, and agree that it can lead to better returns. You can drive a race car faster when it has good brakes: the hedges function as brakes that allow riskier, higher return investments to be held.
There are more than a few areas where I agree with Taleb. He includes one of my all-time favorite quotes from Yogi Berra: “It ain’t over ‘til it’s over.” This applies not only in baseball but in investing and many areas of life: taking a lead in the short-term doesn’t necessarily lead to long-term success. Taleb also points out the difficulties many supposedly smart people have admitting a mistake: “it is harder to act as if one were ignorant than as if one were smart”. I cover this topic in my Mistakes weren’t made post. Taleb also focuses on the problems of inductive reasoning, and that resonates with my own thinking and experience. Taleb uses the “dog not barking” argument, as I did in my post The #OriginOfCovid dog that did not bark.
Taleb saves his most acerbic comments for the journalism profession. I’ve stopped consuming mainstream media including the New York Times and NPR because they’ve gotten so many stories wrong. As Taleb states “this business of journalism is about pure entertainment, not a search for truth”; “the description coming from journalism is certainly not just an unrealistic representation of the world but rather the one that can fool you the most by grabbing your attention via your emotional apparatus”; and “journalism may be the greatest plague we face today—as the world becomes more and more complicated and our minds are trained for more and more simplification.”
Fooled by Randomness is a collection of essays. In the preface to the edition I read Taleb says that one of the complaints voiced about his original book is that it could have benefited from tighter editing. I agree, but Taleb is a strong-willed individual who says he is never going to comply with that request. Taleb occasionally introduces ideas and observations abruptly, and the second half of the book is less interesting than the first. Still, I enjoyed it enough to someday read more of Taleb’s books.