Brian Stoffel

Brian Stoffel

16-07-2022

11:49

I’ve read thousands of books. In 2010, I picked one up that would change my life. The book: *Fooled by Randomness* by Nassim Nicholas Taleb (@nntaleb) Over a decade later, the 5 lessons that have stayed with me:

1) Narratives are powerful Stories are powerful. They are also blind to randomness. This can lead to dire consequences. Money Quote:

Think about it: A journalists job is to make sense of the world. But if much of what happens is random, there’s no story to tell. Without a just-so story, you’re out of a job. Being poor < Being wrong Thus, (most) journalists continue to be blind to randomness

2) Luck (Randomness) Is Everywhere Consider 1,000 possible futures for… A skilled dentist ⇒ successful in over 900 such futures A skilled actor/trader/author ⇒ successful in ~5 of such futures Luck plays a large role Money Quote:

Think about it: In any possible future, *some* people will obtain that luck. When they do, all of the attention will go to them. Their success will be viewed as a foregone conclusion. Their success is attributed to skill over luck. Even though this isn’t the case.

3) Focus on process over outcome Because huge success is determined by luck, we shouldn’t focus on outcomes. We should focus on the process by which we reach our decisions. Money Quote:

Think about it: A better way of conceptualizing a process and its results would look something like this. The only thing you can control is the process. The outcome is determined (in varying degrees) by fate.

4) Consider probabilities AND payoffs We usually consider probabilities much more than payoffs. That’s a mistake. Even if you have a 99.9% chance of success – if failure leads to ruin, it’s still not worth it.

Think about it: Luckily, the inverse is also true. Even if success is unlikely, if the payoff for a huge success is uncapped, it can still be smart to pursue a venture.

5) Skill is downside protection The SKILL is in doing everything you can to limit your downside Then, leave enough room and opportunity for LUCK to benefit your upside.

Think about it: In your financial life, this means having an emergency fund, having insurance, not relying on stock market gains (SKILL) Once established you can invest, be an entrepreneur, etc (LUCK)

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The 5 lessons: 1) Narrative are powerful & misleading 2) B/c they’re blind to luck (randomness) 3) Thus, focus on process (~skill) over outcome (~luck) 4) Don’t forget, it’s about payoffs X probabilities 5) The skill = limiting downside while creating opportunities for upside



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