For me, the book also communicates an important lesson that we all should bear in mind with regards to our success in life or stock markets. Are the success really attributable to our skills or is it merely luck? Are we so blinded by success that we think that we are on top of the world without realising a change of luck may undone everything that we have worked so hard for? As such, this book would serve as a good reminder to us to be cautious and not be over-confident and deluded. Again, this book is a must-read and if you read it together with Tim Harford's The Logic of Life, the insights would be even more revealing and I am sure it will make you think much more.
Some excerpts from the book which I find useful (words in blue are my personal opinion):
1) Mild success can be explainable by skills and labor. Wild success is attributable to variance. (There are two ways to look at this statement. For extraordinary success, e.g. Bill Gates, a large portion of his success is probably due to luck, i.e. at the right place at the right time, etc. Don't get me wrong. Bill Gates is a brilliant guy and I think he deserved it but so do many other guys who may be even more brilliant and hardworking than him but we know how far they are from Bill Gates. Another way to look at that statement is that if we want to achieve wild success, risk taking is a must or else you would not have the chance to encounter the super luck or the variance needed. Just be aware that for every Bill Gates, there are countless university dropouts who are barely able to feed themselves).
2) Behavioral scientists believe that one of the main reasons why people become leaders is not from what skills they seem to possess, but rather from what extremely superficial impression they make on others through hardly perceptible physical signals - what we call today "charisma", for example. The biology of the phenomenon is now well studied under the subject heading "social emotions". (Body language matters!)
3) As a derivatives trader I noticed that people do not like to insure against something abstract; the risk that merits their attention is always something vivid. (Knowing this helps especially if you need to convince clients, customers, etc. on something. Focus on something vivid which they can relate to).
4) ....... rational thinking has little, very little, to do with risk avoidance. Much of what rational thinking seems to do is rationalize one's actions by fitting some logic to them. (Think properly. Are you guilty of this?)
5) Psychologists call this overestimation of what one knew at the time of the event due to subsequent information the hindsight bias, the "I knew it all along" effect. (This reminds me to look at people's "failure" if I were in their shoes and don't be too quick to pass judgement on other's mistakes).
6) Those who were unlucky in life in spite of their skills would eventually rise. The lucky fool might have benefited from some luck in life; over the longer run he would slowly converge to the state of a less-lucky idiot. Each one would revert to his long-term properties. (So, the key is perseverance and continues to upgrade one's skills and relevancy in this fast paced and ever-changing environment).
7) The wise man listens to meaning; the fool only gets the noise.
8) ..... at any point in time, the richest traders are often the worst traders. This, I will call the cross-sectional problem: At a given time in the market, the most successful traders are likely to be those that are best fit to the latest cycle. This does not happen too often with dentists or pianists - because these professions are more immune to randomness. (The same with engineers. If you are good, don't despair if your situation currently is not as good as you would have liked. With time, your skills would get better and your conditions will generally improve with time).
9) Psychologists recently found out that people tend to be sensitive to the presence or absence of a given stimulus rather than its magnitude. This implies that a loss is first perceived as just a loss, with further implications later. The same with profits. The agent would prefer the number of losses to be low and the number of gains to be high, rather than optimizing the total performance.
10) ....... not to approach anything as a game to win, except, of course, if it is a game.
11) ...... extreme empiricism, competitiveness, and an absence of logical structure to one's inference can be quite explosive combination.
12) ...... an open mind is a necessity when dealing with randomness.
13) ..... survivorship bias implies that the highest performing realization will be the most visible. Why? Because the losers do not show up. (This explains why we usually think it is easy to be a successful businessman because we don't see the not so successful businessman. This is also why highly educated people usually don't make a lot of money. This is because they know the real odds of making it in business and as such, most of them ended up not trying. Maybe sometimes ignorance is bliss?)
14) Optimism, it is said, is predictive of success. Predictive? It can also be predictive of failure. Optimistic people certainly take more risks as they are overconfident about the odds; those who win show up among the rich and famous, others fail and disappear from the analyses. Sadly. (Despite this statement, I still think that optimism is good. This is especially for people like engineers, doctors, etc. Because of what we read, we generally knew the odds and therefore, we need some optimism to balance our life or else we will be paralysed to act or to try out new things. Isn't that sad?)
15) Judging an investment that comes to you requires more stringent standards than judging an investment you seek, owing to such selection bias. (Simple common sense right? If someone is selling you something, of course he/she will be bias towards making the sell rather than protecting your interest.)
16) It is obvious that the information age, by homogenizing our tastes, is causing unfairness to be even more acute - those who win capture almost all the customers (This is the new reality of the globalized world - any slight advantage over your competitor will results in disproportionate lucrative profits)
17) ...... there are routes to success that are nonrandom, but few, very few, people have the mental stamina to follow them. Those who go the extra mile are rewarded.......Most people give up before the rewards.
18) One cannot make a decision without emotion. (It is important that we realise this in management and also business. We tend to complain why some client make lousy decisions even though it is obvious. It is probably because engineers tend to look at the logical aspects and forget about the emotional aspect of the decision. To convince someone, we need to approach from both logical and emotional aspects and emotional aspects are probably more important)
19) Say you own a painting you bought for $20,000, and owing to rosy conditions in the art market, it is now worth $40,000. If you owned no painting, would you still acquire it at the current price? If you would not, then you are said to be married to your position. There is no rational reason to keep a painting you would not buy at its current market rate - only an emotional investment. Many people get married to their ideas all the way to the grave. Beliefs are said to be path dependent if the sequence of ideas is such that the first one dominates.
20) My lesson from Soros is to start every meeting at my boutique by convincing everyone that we are a bunch of idiots who know nothing and are mistake-prone, but happen to be endowed with the rare privilege of knowing it.
21) ..... research on happiness shows that those who live under a self-imposed pressure to be optimal in their enjoyment of things suffer a measure of distress.
22) We know that people of a happy disposition tend to be the satisficing kind, with a set idea of what they want in life and an ability to stop upon gaining satisfaction. (Do you know what you want in life? Do you keep on switching the goal post, e.g. you initially aim to own a big house and a nice car and with some measure of financial security for your family but upon reaching that goal, you are now dreaming of a ferrari and two house each for your children?)
23) People who get promoted to important positions usually suffer from tightness of schedules.
In summary, I have always enjoyed reading books by authors such as Malcolm Gladwell and Nassim Nicholas Taleb simply because they are always unconventional and tends to look at things from a different perspective. This makes reading their books so refreshing and it always give me renewed energy to fully enjoy work and my life. The last point (Item 23) does ring a bell for me (I am not in that important position) but sometimes, it does feel that schedules are always tight and it does affect us from being a better human being and co-worker. So, at the very least, after reading this book, I vow not to take little things too seriously and to enjoy this adventure we call life while it last.
p.s. Euro 2012 is shaping up to be quite exciting with England beating Sweden 3-2. I'll bet that if England went on to beat Ukraine and qualify for the next round, every England supporters will start believing that they are good enough to win it. Me, I am putting my money on Germany.
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