Nassim Nicholas Taleb’s first book, Fooled by Randomness, is a well deserved number 2 on our list of books to read before buying your next stock. Black Swan, his second book, covers similar concepts to Fooled by Randomness. It is an excellent book that often made me question my own long held beliefs.
The book has helped me understand that:
1. When making investment decisions we spend a significant amount of time trying to take account of all possible outcomes to arrive at the best decision. A “Black Swan”, or unanticipated left field event, can have a huge impact on the performance of the investment. This does not mean that all of our analysis is a waste of time, but that we need to open our minds to the possibility that things will happen that are totally unexpected. Good investment performance is a combination of good analysis, good decisions and luck.
2. One of the reasons we don’t properly account for Black Swans is that it makes “Experts” seem less of an expert. If you spend an hour discussing the pros and cons of an investment with your advisor, who then ends the conversation by saying “Also, the investment could halve or double in value due to an event that I have not thought of” you would probably get a new advisor!
This book took me a long time to read but it is well worth it.