26 Apr

Fooled by Randomness

Fooled by Randomness


If you are interested in the investment process and taking financial risk I highly suggest you read this Malcolm Gladwell piece from The New Yorker. It was also featured in his book What the Dog Saw.

I challenge you to push further and read the books profiled in the article. Fooled By Randomness and The Black Swan are both solid investment books by Nassim Teleb.

Taleb gives us examples of what a nasty rainy day (market wise) looks like. I guess it is nice to have the knowledge of how he prepares for a reversal in a market but I do not know how much value his strategy will add to an investment process. I guess almost every trade, if you have deep enough pockets, will eventually be “in the money.” Maybe this is why Jim Rogers is consistently saying “investing is hard because it’s hard to look out the window.” It requires one of the hardest attributes to come across….patience.

I highlight both of these books because after being part of an investment team the past few years I realize how random the process is. When you are trading systematically it takes a lot of courage to embrace volatility and trust in the process. One month can present great returns and the next month’s returns can be dreadful. As a money manager, your life can become a ride of what seems like pure randomness. What makes the market go up one day is the exact thing that makes the market go down the next day.

I think this randomness is potentially the hardest thing for “buy side” investors to comprehend. People are always trying to make sense of noise. Markets are random. Life is random.

I liked these books because Taleb introduces to some and expands to others, the concept of randomness. As speculators we do not know for certain when the next major market rally or sell off will be. As conscious human beings, we do not know why we are here. We will never know. Maybe a higher power is dictating our lives and challenging us to consciously see Him through the noise, clutter and randomness?

It’s fun to make something of the noise in our lives but, if you consider that life is a random process I urge you to sit back, relax and people watch. It is very interesting to see everyone running around a city trying to make something out of what is most likely randomness or a process dictated by Him.

Breathe. Take a full minute and listen to your breath. That noise is the true gift.

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