Blog 2018 10 31 Nassim N. Taleb: The Black Swan

Nassim N. Taleb: The Black Swan

I came across Nassim Taleb’s name and The Black Swan several times reading the books and articles of some modern Stoics and some motivational writers. When I mentioned to one of my best friends that this is the book I’m going to read next, he told me that he’d be very interested in my opinion. According to him, many people don’t like Taleb.

Now I understand why Taleb is cited many times and why a big bunch of people don’t like him. Let’s start with the latter. Taleb doesn’t fit into the ultra sensitive PC movement. He doesn’t think twice if he should write something down or not because someone might be hurt in his feelings and go cry in the corner. He is also very opinionated on other thinkers’ and economists’ work and he is clearly not part of the mainstream. These are enough reasons to have a big enough group of people not liking him.

Black Swans, what are they? They are events that nobody expected, but in hindsight it’s easy to explain them and they seem to be events that should have been expected. Like 9/11 according to Taleb. Or like the killing of the Thanksgiving turkey - from the point of view of the turkey itself.

While this kind of events are rare they are highly responsible for our environment, they are too frequently ignored or not handled appropriately. Let’s take an example from stock trading - the author used to work a trader: “by removing the ten biggest one-day moves from the U.S. stock market over the past fifty years, we see a huge difference in returns—and yet conventional finance sees these one-day jumps as mere anomalies”. Those ten days in fifty years are responsible for about half (!!!) of the returns. Those days are the Black Swans. Had they been expected, they’ve had a different effect.

Can we actually know what Black Swans will appear? No, we can’t, obviously. But we can mitigate their risks. Taleb writes a lot about the Gaussian distribution and how it’s incapable of approximating proababilities. Yet, it’s widely used. The author spends a lot of efforts showing how bad the Gaussian model is and why it’s unusable to explain many of the phonemena where depsite it’s used.

Accepting not to use the Gaussian - that much - moves us forward to the solution. Taleb ends with sharing that half time he is hyperconservative and half time he is hyperaggressive in running his own effers. “This may not seem exceptional, except that my conservatism applies to what others call risk taking, and my aggressiveness to areas where others recommend caution.” - says Taleb. He doesn’t worry about failures, but tries to limit their downsides. If a risky stock goes down, no problem. Because he didn’t have a lot to loose. But if the winning black swan hits in, he gained the money for decades.

Can you identify Black Swan event in your life, how do you anticipate the coming ones? After reading the book, maybe you’ll be closer to the answer!

This post is licensed under CC BY 4.0 by the author.