I have finished reading “The Black Swan” by Nassim Nicholas Taleb. At the moment I’ve started reading “Mindful Money” by Jonathan K. DeYOE. (I will read “Antifragile” in the very near future, once I get a copy from one of my colleagues on my next trip to DC.)
I’m still not going to claim to understand what Nassim is saying, though he did lay some things out explicitly in his extended essay at the end of the book.
Re: Would Nassim agree with the idea of spending $1 on a lottery ticket each week? Is this a good way to accumulate small losses while allowing for the possibility of being positively affected by a Black Swan event?
I think Nassim would not suggest playing the lottery. On pages 302 - 303 he defines the following:
Lottery-ticket fallacy: the naive analogy equating an investment in collecting positive Black Swans to the accumulation of lottery tickets. Lottery tickets are not scalable.
Re: What strategy did (does?) Nassim use in his trading?
He used the Barbell Strategy, as described on page 205:
[T]he "barbell" strategy I used as a trader ... is as follows. If you know that you are vulnerable to prediction errors, and if you accept that most "risk measures" are flawed, because of Black Swan, then your strategy is to be as hyperconservative and hyperaggressive as you can be instead of being mildly aggressive or conservative. Instead of putting your money in "medium risk" investments ... you need to put a portion, say 85 to 90 percent in extremely safe instruments, like Treasury bills [and the] remaining 10 to 15 percent you put in extremely speculative bets, as leveraged as possible ... preferably venture capital-style portfolios.
Here is how he summarized it on page 301:
Barbell strategy: a method that consists of taking both a defensive attitude and an excessively aggressive one at the same time, by protecting assets from all sources of uncertainty while allocating a small portion for high-risk strategies.
As a side note, though I hadn’t written about it in the prior post, I was also curious what he would say about Pascal’s Wager. In fact, he also addressed that directly in the book on pages 210 and 211. I’ll let you get the book and read that for yourself.
So, anyway, how’s about I get to the point (such as it is) of this post?
One of the things that I am synthesizing between what I’ve read from Nassim and what I’ve just started reading from Johnathan is that life is filled with so many variables and so much randomness that we can’t control. Thus, I came up with this idea of life being a random walk through Wouldacouldashouldaville.
- There is an essentially infinite number of ways that things could have gone for each and every one specific way that things actually did go throughout your life. That’s just the way life is. Don’t let yourself get caught up in it.
- Don’t waste your time on second guessing and ruminating over woulda-coulda-shoulda.
- Live your life the best you can and don’t assume that everything is under your control or that you will ever have all the information you need.
- You can never predict the future.
- Be present and live in the now.
- Some times you get lucky and some times you don’t, but you can never control luck.
- etc, etc …
Don’t worry, be happy. But, also don’t fool yourself about how much risk you are taking on. As Nassim has said more than one time: He’s not saying to not take any risk. He’s not saying, “Don’t cross the street.” He’s saying, “Don’t cross the street blindfolded.” Much more that telling us what to do, Nassim is telling us what not to do. If I can be so bold to presume I understand him at all, he values negative advice much more than he values positive advice, and his advice essentially boils down to “Don’t be a sucker.” However, he even clarifies that advice to “Don’t be a sucker in the things that are consequential.” (It’s okay to be a sucker for all those things that are not consequential.)
I give thanks to the Universe for the abundance it provides me. I surrender and am open and ready to receive.
Bhavatu sabba mangalam - May all beings be happy