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Fooled by Randomness by Nassim Nicholas Taleb – Book Summary

Fooled by Randomness by Nassim Nicholas Taleb. Have you ever wondered whether the most important decisions of your life, your greatest successes and your most painful failures, were really under your control? I guarantee you.

In the next few days, your way of looking at the world, understanding your success and taking your decisions is going to change forever. Do you also sometimes wonder why even after working so hard, you do not get the results that other people get very easily? 

Are you also troubled by the daily fluctuations of the stock market? Thinking about when to invest money and when to withdraw it. Do you also feel that luck is angry with you and is more kind to others? If these questions arise in your mind then you are at the right place.

Chapter 1: The Illusion of Skill – Is Your Success Really Yours?

Let’s start with a story. Imagine there are two traders. One’s name is Neeraj and the other’s name is Sameer.

Neeraj is a very educated, hardworking and disciplined trader. He studies the balance sheets of companies. He understands the market trends and very thoughtfully makes small but safe trades. He consistently earns a profit of 10 to 15% every year.

On the other hand, there is Sameer who is not very educated and only knows the market trends. He gets influenced by others and without thinking much, invests all his money in a very risky new technology company.

His money keeps sinking for months. People ridicule him. Then suddenly one day that company makes such an announcement that its shares rocket. Sameer becomes a millionaire in one go. Now you tell me, who will the world call a genius? Whose photo will be printed in the newspapers? Whose interview will come on TV? Obviously Sameer’s. People will say what a vision he had! What courage he had! He saw what no one else could see. And Neeraj, perhaps no one will even ask about him. He is just an ordinary boring trader.

This is where Nassim Nicholas Taleb shocks us for the first time. He says that we live in a world where people like Sameer are worshipped for their luck and their luck is considered their skill or their ability. This is what he calls the illusion of skill.

The mind of us humans is made in such a way that we need some reason behind everything. If someone has succeeded, we assume that he must be very intelligent, hardworking and capable. And if someone has failed, we assume that there must be some flaw in him. We do not want to accept the fact that randomness, i.e. coincidence, has a huge hand in success and failure. Sameer’s success was not his ability.

He was just present at the right place at the right time. He was one of those thousands of people who had placed such blind bets. The only difference was that his luck worked and the rest of the thousands lost. But we never look at those thousands who lost. We only look at Sameer who became successful.

Now think about your life. Is there someone in your office who works less than you, but is a hero in the eyes of the boss because his one project became very successful by chance? Or a relative who became rich overnight by a land deal and now goes around giving investment advice to everyone?

Seeing the success of such people, we either get jealous of them or consider them our guru and try to copy them. And in both the cases we make a mistake. When we try to copy them, we forget that we are not copying their ability but their luck — and luck cannot be copied.

The risky stock that made Sameer a millionaire may be the one that will set you on the wrong track. Taleb warns us that unless we understand the fine line between skill and luck, we will keep making wrong decisions again and again in life. We will keep getting influenced by the wrong people and will keep blaming ourselves unnecessarily for our failures.

This confusion is not just in finance or business but everywhere. An author whose first book becomes a bestseller is considered a genius. Whereas it is possible that his book has just come at the right time with the right trend. A film star whose one dialogue becomes a hit is considered the king of acting. We see the result, not the process.

We do not see how difficult and coincidental the path to that result was. We just look at the person present at the destination and assume that the path was straight and flat which he has covered with his ability. This thinking gives us a false sense of security.

We think that if we do the same as a successful person, we will also become successful. But this world is not like a maths question where the right answer comes every time with the same formula. This world is an ocean of possibilities where the waves of luck can take anyone to the shore and can drown anyone.

But the most important question is: how do we recognize this illusion? How do we differentiate between a real diamond and a piece of glass? It is important to know this because if you accept a trickster as your guru, he will take you to a ditch from which it becomes impossible to come out.

And we will get the answer to this in the next chapter where we will talk about a mysterious Black Swan which, when it comes, either destroys everything or makes it prosperous.

Chapter number two

The black swan is coming, which you had never imagined, it can change your world. For hundreds of years, the people of Europe believed that all the swans in the world are white.

They had seen thousands and millions of swans in their entire life and all of them were white. This was a universal truth for them. A truth that no one could question. Then one day an explorer reached Australia and saw a black swan there. Just one black swan. That one discovery shattered the belief that had been going on for hundreds of years in one stroke. That one single event outweighed the experience of seeing millions of white swans.

Naseem Talib uses this theory of black swan to explain the most unexpected and most impactful events in life and the market. A black swan event is an event that no one could have imagined, which comes suddenly and after which the world changes forever. The invention of the internet, the 911 terrorist attack, the 2008 economic crisis or the recent coronavirus, all these are perfect examples of black swan events.

Now you must be thinking what do these huge events have to do with your personal life? There is a connection and a very deep one. Your life is also full of these black swan events. That sudden job that changed your entire career. That meeting with a stranger who later became your life partner. That sudden illness that made you health conscious or that unexpected accident that took away everything. All these are the black swans of your life.

These are the events that either make or break your plans, your goals and your 5-year plans in a jiffy. Talib says that we humans are completely unable to understand these black swan events. Our brain is made to understand small everyday things. We can guess what will happen tomorrow? What will happen next week? But we can never guess that one huge event that will change everything.

The main reason for this is that we make our decisions and future plans based on our past experiences. We assume that what has happened till now will continue to happen in future as well. People invest in the stock market by looking at the returns of the past years. Forgetting that a black swan event like the crisis of 2008 can bring the entire market to its knees. We keep working in a secure job for years.

Thinking that it will always be there and then one day suddenly the company is sold or the technology changes and we lose our job. We see our life moving in a straight line. Whereas in reality life is full of unexpected twists and turns and shocks. We get so busy counting the white swans that we deny the possibility that a black swan can also exist. And when it comes, we are completely unprepared. We get surprised, worried and frustrated.

And you know what is the most interesting thing? After any black swan event occurs, we all suddenly become experts. After the incident, everyone starts saying that I already knew something like this was going to happen. This is called hidden side bias. After the 2008 economic crisis, thousands of experts emerged.

Who said that its signs were clearly visible. But why was none of them able to say this openly before the crisis? Because the very nature of a black spot is that it is unpredictable. Later it is very easy to make a story by combining its reasons. This is like saying after the lottery number is drawn that hey this number also came to my mind. Because of this hidden side bias, we start living in a dangerous illusion.

We start to feel that the world is predictable and we can understand the future and this thinking makes us even more careless. We stop preparing for the next unexpected event because we think we will see it coming but we will not be able to see it. Talib warns us that history can teach us about the minor ups and downs of the future. But it can never tell us about the next black spot.

So the question arises, what should we do if we cannot predict these life-changing events? Should we remain puppets in the hands of fate? Is there a way to avoid the negative impact of these black swans and perhaps even benefit from their arrival? 

Chapter number three The cemetery of unseen people.

The real truth hidden behind success stories. Imagine you are in a city where thousands of people have a dream. The dream of opening a successful restaurant. You go to the most famous food street of the city. There you see 10-15 great restaurants filled with thronging customers. You talk to their owners. Everyone tells you their success story. I worked with passion.

I understood my customers. I did not compromise on quality. You get very inspired by listening to these stories and you feel that you have found the formula to open a successful restaurant. You think that if I focus on passion, hard work and good quality, I will also be successful. But you are ignoring a very important and very dangerous thing.

You are only looking at the restaurants that have worked and are still alive. You are not looking at the thousands of restaurants that opened in the same area and closed in a few months. The restaurants that no longer exist have become part of an invisible graveyard. This is survivorship bias. A mental fallacy in which we draw conclusions only by looking at the people or things that have succeeded and completely forget the countless unsuccessful people who followed the same path.

We study the stories of Bill Gates, Steve Jobs and Mark Zuckerberg. Who dropped out of college to start their own companies and became billionaires. By studying these stories, we think that dropping out of college to become rich is a good idea. But we never hear about the millions of people who dropped out of college and are living a life of anonymity today. We see successful actors who came to Mumbai and became stars. But we don't see the millions of people who came with the same dreams and returned unsuccessful.

The media, books and motivational speakers always tell us the stories of winners. They never tell us the stories of losers because loser stories don't sell. The result is that we get a very biased, one-sided and inaccurate map of success. We think the path to success is straight and that adopting certain qualities like passion, hard work, positive thinking guarantees success.

But those thousands of failed restaurant owners also had passion. They also worked hard. They also had positive thinking. So why did they fail? Maybe their location was wrong. Maybe a huge competitor opened in front of them. Maybe there was an economic recession in the city or maybe. Maybe they had bad luck. When we only look at the survivors, we completely ignore this huge role of luck. We take it for granted that success is entirely a result of individual qualities.

This thinking is not only wrong but also very dangerous. It makes us overconfident and careless. We think that we can also become successful easily by following the footsteps of those successful people and in doing so we take huge risks. When a new investor comes to the stock market, he hears stories of people who made money overnight. He does not know about the 90% of people who lost their money. And inspired by those success stories, he invests all his money in the market without thinking. Assuming that he too will be one of those winners.

Talib gives a very powerful example. He says that if you ask someone to participate in a game of Russian roulette in which there is one bullet out of six in the gun and he survives, will you call him brave or stupid? He survived. He is a survivor and now he has also become a millionaire. But will it be wise to copy his action? Absolutely not. Survivorship bias leads us to imitate similar dangerous outcomes.

So what should we do? Talib says we should deliberately look for that graveyard. Whenever you study or hear the story of a successful person, stop and ask yourself, how many people were there who tried to do the same thing and failed? We should focus more on the reasons for failure than on the recipes for success. Because what makes people successful is often a mixture of luck and coincidence. But what makes people unsuccessful is often solid and learnable mistakes.

For example, having a good location is not a guarantee of success. But having a bad location is almost a guarantee of failure. The stories of winners can inspire us. But the stories of losers teach us the real lessons. They tell us which mistakes not to make. Which problems to avoid? But there is another huge web of information spread in our world. A web that pulls us towards it every moment and prevents us from differentiating between right and wrong. This is a web of noise and signal.

Chapter number four The game between noise and signal.

Does every small and big event of your life really matter? Imagine you are on a long journey in your vehicle and you are trying to listen to your favorite radio station. But the station is not being caught properly.

Along with the soft tune of the song, you are also hearing a lot of unnecessary sounds and other voices. Here the tune of the song is the signal. The real information that you want to hear. And the rest of the unnecessary sounds and useless voices are noise. That useless information which is preventing you from reaching the signal. Naseem Talib says that our modern life is also like this radio.

We are surrounded by a tremendous amount of information every day and it has become almost impossible to find the real signal amidst that noise. TV news, social media feeds, WhatsApp forwards, minute-to-minute fluctuations in the stock market, all this is noise. And this noise has a very deep and negative impact on our decisions. Take an investor. Every morning he wakes up and switches on the business channel.

The anchor is shouting why the market fell today? Why it went up yesterday. He listens to experts who are giving their opinion on every small and big event. He checks his portfolio every minute on his phone. If something is red today, he starts worrying. If something is green tomorrow, he becomes happy. He gets so entangled in this daily noise that he is unable to see the real signal. What is the real signal? The real signal is the fundamentals of the company.

The long-term direction of the country's economy and its own financial goals. These things do not change every day. But due to the everyday noise, he panics and sells his good stocks at the wrong time or buys the wrong stock by trusting some rumour. Talib says that the more times you look at your investments, the poorer you will become. Because every time you look at it, you will be influenced by the noise and take some stupid step. This noise is not limited to finance only.

It is equally dominant in our personal life. Imagine you had a bad day with your boss. Your boss scolded you on some issue. This is noise. It is an incident of one day. But you consider it a sign. You start feeling that my boss does not like me. My career is in danger. I should leave this job. You start drawing huge conclusions based on a small incident. Whereas it may be that your boss is having a bad day or he is upset about something else.

What is the real sign? The real sign is your performance review of the last one year. The overall pattern of the relationship between you and your boss, your own ability. But we ignore this long-term signal and react to the immediate noise. Similarly, we consider a small argument in a relationship as the end of the relationship. We consider a minor health problem of one day as a sign of a major disease. We repeatedly make the mistake of considering noise as a signal.

Talib advises us to go on an information diet. Just like we avoid eating junk food to keep our body healthy, we should avoid junk information to keep our mind healthy. This means stop watching the news every day. Especially the news that is sensational and has no direct impact on your life. Stop checking social media every hour. Check your investments once every six months or a year instead of every day or every week.

Only when you remove noise from your life will you start hearing the real signals. You will be able to think about the long term. You will stop panicking over small events and your decision making ability will improve tremendously. You will feel calm and stable. But who is responsible for creating this noise and delivering it to us? They are the experts, analysts and forecasters.

People who claim to know what will happen tomorrow, where the market will go and who will win the election. They keep telling us what we should think and what we should do. But do these experts really know as much as they pretend? Or are they also like the king in the story who was not wearing any clothes. But no one had the courage to say this. What is the reality of these experts? 

Chapter number five The king without clothes.

Why are experts often wrong and why do we believe them? You all must have heard that story in your childhood. The king's new clothes. There was a king who was very fond of new clothes. Two thugs came to him and said that they can make such a magical dress which is visible only to the wise people and not to the fools. The king agreed.

The thugs pretended that they were not making anything and started sewing by waving their hands in the air. When the clothes were ready, they made the king wear it. The king could not see anything. But for fear of admitting that he was a fool, he started praising them. Wow, what wonderful clothes! All his ministers and courtiers also started praising the clothes to save their jobs and prove themselves wise. The king went on a procession in the city wearing those invisible clothes.

All the people were also praising the king's clothes for fear of being called a fool. Then a small child shouted from the crowd, hey, the king is naked and suddenly everyone's illusion ended.

Naseem Talib says that our world today is filled with thousands of such naked kings. These are our financial experts, economists, political analysts and soothsayers. These are the people who tell us with great confidence and using complex language what is going to happen in the future. They tell us which stock to buy. In which direction the economy will go.

Who will be the next Prime Minister? And we common people believe in their words because we feel that they know more than us. They are intelligent. We do not want to prove ourselves foolish like that small child who says that I do not understand what you are saying or I do not think that you can see the future. We all want to remain a part of the crowd that is praising the invisible clothes of the king.

Talib has repeatedly proved in his research that the predictions of these so-called experts are no better than tossing a coin. A researcher named Philip Tetlock tracked thousands of predictions of about 300 experts for 20 years and found that their accuracy was less than a monkey throwing an arrow. They are constantly proven wrong. But still their shops keep running.

Why? There are many reasons for this. First, their language is very complex and clear. They will say that there may be some instability in the market in the near future. Now if the market goes up, then it is right, if it goes down, then it is also right. Secondly, we humans remember their correct predictions and easily forget the wrong ones. If an expert says 10 things and one of them turns out to be correct, we consider him a genius and ignore the remaining nine wrong things he said.

And the most important reason is that these experts give us what we need the most. The illusion of certainty. This world is a very uncertain and scary place. We don't know what will happen tomorrow. In such a situation, when an expert wearing a suit and boots comes and confidently says, "Don't worry. I know what is going to happen." Then we get relief, even if he is a liar.

We put our responsibility on that expert. If his advice benefits us, we praise our intelligence. And if there is a loss, we abuse that expert and wash our hands off it. Talib tells us to be careful of anyone who claims to tell the future. Especially in those matters where the role of luck is very high. Such as market and politics. He says that you can trust the prediction of a plumber or a dentist because the role of luck in their work is very less. But trusting the prediction of an economist is like deceiving yourself.

So if we cannot trust experts, cannot trust success stories and we cannot even predict the future, then what should we do? Are we completely helpless? Are we just made to be slapped by fate? No, not at all. Talib wants to make us a stoic, a realistic and strong person, not a pessimist. So far he has told us how we get cheated. Now in our final chapter, we will learn how to avoid this cheating and not only survive in this uncertain world, but also how to succeed.

We will learn how to make fate our friend, not our enemy. The path to it is not straight, but it is possible, and the knowledge of it is the real essence of this entire book.

Final Chapter How to make fate your friend.

In this entire journey, we learned how our world is tied with the invisible strings of coincidence and fate. We understood the illusion of skill. We came to know the unexpected blows of the Black Swan. We saw the truth of the unseen graveyard. We understood the difference between noise and signal, and recognized the deception of the unclothed kings, i.e. experts.

Now you must be thinking that knowing all this is making us even more scared. If everything is so uncertain, what is the point of our hard work, our plans? This is where Naseem Talib teaches us the most important and practical lesson. His aim is not to scare us but to make us robust. He wants us to live a life that does not break with small blows of fate but becomes stronger.

So how can we do this? The first and most important rule is humility. Accept that you do not know everything. Accept that you cannot predict the future. The moment you accept this, you are free from the deception of experts. You stop believing that someone has a secret formula for success. This humility will prevent you from taking unnecessary risks. You will understand that luck also played a role in your past success, so you will not become arrogant. You will also always have a plan because you know that things can go wrong.

The second rule is to focus on the process, not the result. As we saw in the story of Neeraj and Sameer, the world worships Sameer's result of becoming a millionaire. But Taleb says that we should respect Neeraj's process, discipline, hard work and well-thought-out decision. It is possible that despite your good process, luck may not favor you and you may suffer a small loss and it is possible that someone wins by luck despite a very bad process. You should be proud of your process and not the momentary results. In the long run, a good process will save you and make you successful.

So make good decisions and then let the result go to luck. The third and most powerful idea is the barbell strategy. Imagine a barbell with heavy weights on both ends and the middle rod is empty. Talib says that we should live our life like this. This means in most parts of your life, like 80 to 90%, you should be extremely safe. Keep your money in the safest places. Do a job that has stability. Take great care of your health. There is no risk here. That's one end of the barbell.

And then with a very small part of your life, 10 to 20%, you can take very big and positive risks. This is money you can invest in a very risky startup. This is time in which you can learn a new passion or hobby. The advantage of this strategy is that if your risky bet fails, you will lose a maximum of 10%. But 90% of your life will be completely safe.

But if that small risky bet of yours works, if it becomes a positive black spot, then you can get unlimited profit. This way you protect yourself from bad black spots and keep yourself ready to benefit from good black spots.

In the end, Taleb advises us to become a modern Stoic. Stoicism is an ancient philosophy that teaches that we should focus on the things that are within our control—our thoughts, our actions, our process—and should not worry about things that are beyond our control: luck, results, other people's opinions. Do not get too happy or sad when luck is good or bad. Accept success with dignity and face failure with courage. Know that living a good life does not mean winning every time but sailing the waves of uncertainty with dignity and wisdom.

My dear friends, thank you very much for staying with me till the end of this enlightening journey. We learnt from Naseem Talib's book Fool by Randomness that success and failure are not just a result of our ability but luck has a huge hand in it. We learnt that we should not be blinded by the stories of winners and learn from the mistakes of losers. We learnt how everyday noise prevents us from making the right decisions and how experts trap us in the web of their predictions.

And most importantly, we have learned that with humility, good process, barbell strategy and a settled attitude, we can not only survive but thrive in this uncertain world. You will no longer look at the world the way you did before. Now whenever someone tells their success story, a bell will ring in your mind: Is it just luck? Hmm. You will make your decisions more wisely and be better prepared for the ups and downs of fate.

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