Fooled By Randomness ??: A revisit

Fooled By Randomness ??: A revisit

"Just as coincidence can be confused with causality, the lucky idiot can be confused with the skilled investor. The realities of randomness and probability almost guarantee that, out of a large pool of random investors, a Warren Buffett will emerge just by luck"-Nassim Nicolas Taleb.

We can be easily fooled by randomness, which means we might not give enough credit to luck and chance when something good happens. We like to think that we're in control of our lives and that success comes from our own skills and hard work. But the truth is that many things are out of our control. Nowhere is this more evident than in the stock market, where we should be more honest about the role of luck in success.

Following are some great gems of wisdom from Fooled By Randomness by Taleb,?

Hindsight Bias:

Interestingly, people view past events as less random than they actually were. This is due to the hindsight bias, which causes people to see events that have already happened as more explainable than they were. When listening to someone discuss their past, it is important to keep this in mind and realize that much of what they say may be biased or inaccurate.

Do an Honest Introspection:

Being sceptical certainly requires bravery. To delve inward and examine oneself honestly is a feat in and of itself. It's easier to fool ourselves than to face the sometimes harsh reality of our limitations. Still, scientists are providing more and more evidence that this is how we are specifically designed by nature.?

Probability doesn't answer everything:

Probability is more than just calculating the odds; it's about accepting that we don't always have all the answers and learning how to work with what we don't know. In the real world, probability rarely comes in the form of a math problem or brainteaser. Nature doesn't tell us how many holes are on a roulette wheel, and real-world problems aren't served up neat and tidy like they are in textbooks.

Randomness misunderstood as Non-Randomness:

Investors may have a misguided belief that their success is due to their keen strategy or vision, when in reality, it may just be pure luck. When investors achieve profitable outcomes, they delude themselves into thinking they are more talented than they are and offer false explanations for their success. This act of deception is known as charlatanism.

Differentiate Noise and Signal:

It is important not to worry about patterns that may go undetected. For years, people have been reading messages hidden in natural phenomena like the lines on someone's palm, it has become easier for scientists and enthusiasts to find hidden meaning in these things. However, we must remember that there are also costs associated with getting these readings wrong.

Which one from the above resonates with you?

#quant #quantace

Follow Quantace Research

Source: Nassim Nicolas Taleb @ Fooled by Randomness

Introducing?Quantace Chetak (Aggressive Momentum Factor).?This basket of ours has generated 33% returns since Mar 17. In the same time period, the NIFTY has given 3% returns. We generated 30 % Alpha :). Do check us out.