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Ever since I read The Black Swan by Nassim Nicholas Taleb and Thinking, Fast and Slow by Daniel Kahneman, I can't take anything related to the stock market seri
by vik0 3y ago
Ever since I read The Black Swan by Nassim Nicholas Taleb and Thinking, Fast and Slow by Daniel Kahneman, I can't take anything related to the stock market seriously (among other things as well, but this post is related to the stock market, so that's why I'm focusing on it.)
There's very little skill involved, which isn't to say there is no skill involved whatsoever - but at the end of the day it really is just luck
The following excerpts are from Thinking, Fast and Slow:
"The illusion of skill is not only an individual aberration; it is deeply ingrained in the culture of the industry. Facts that challenge such basic assumptions—and thereby threaten people’s livelihood and self-esteem—are simply not absorbed. The mind does not digest them. This is particularly true of statistical studies of performance, which provide base-rate information that people generally ignore when it clashes with their personal impressions from experience."
"Finally, the illusions of validity and skill are supported by a powerful professional culture. We know that people can maintain an unshakable faith in any proposition, however absurd, when they are sustained by a community of like-minded believers. Given the professional culture of the financial community, it is not surprising that large numbers of individuals in that world believe themselves to be among the chosen few who can do what they believe others cannot."
- achrono 3y agoFWIW ever since Kahneman, Ariely and similar company have had some of their theories get discredited (Ariely's taint is worse because it's to do with fabricating research!) I have gone back to simply resorting to common sense and quotidian skepticism.
- codethief 3y ago> ever since Kahneman […] have had some of their theories get discredited Could you elaborate?
- voiceblue 3y agohttps://replicationindex.com/2020/12/30/a-meta-scientific-perspective-on-thinking-fast-and-slow/ https://replicationindex.com/2020/12/30/a-meta-scientific-pe...
- achrono 3y ago[1] below goes into detail on one of the topics, [2] is a less technical / more journalistic take. Essentially Kahneman ended up being super confident ("disbelief is not an option" he said) about the findings he cited, some of which have been shown to suffer from lack of rigor. If you're wondering "well, just some of them right?" I will ask you to ponder for a minute over the fact that this is not supposed to be some impulse aisle magazine article but a book applied epistemology ("behavioural economics" is to me just what gave this and related books some sales wheels). [1] https://replicationindex.com/2020/12/30/a-meta-scientific-perspective-on-thinking-fast-and-slow/ https://replicationindex.com/2020/12/30/a-meta-scientific-pe... [2] https://slate.com/technology/2016/12/kahneman-and-tversky-researched-the-science-of-error-and-still-made-errors.html https://slate.com/technology/2016/12/kahneman-and-tversky-re....
- bluGill 3y agoA few people have consistently beat the market over many years. I call that skill. I don't know if they really know thier how they do it though
- olalonde 3y agoIf there are really just a few, it could be explained by chance. Warren Buffet is often cited in that group and yet, a blindfolded monkey would have done better than him in the past 20 years[0]. [0] https://www.linkedin.com/pulse/warren-buffett-has-underperformed-sp-500-last-20-years-jain-cfa https://www.linkedin.com/pulse/warren-buffett-has-underperfo...
- pokler 3y agoAnd what about Renaissance Technologies? Is that just chance or luck?
- bluGill 3y agoWarren Buffet also said 20 years ago that he was having trouble find any stocks that he wanted to buy, so he predicted his poor performance. He did very well for the first 30 years of his investment life.
- StanislavPetrov 3y agoI call it (almost always) being a member of Congress or someone else with inside information!
- envsubst 3y agoNassim Taleb made his money trading markets.
- ozzydave 3y agoThis data set should be expanded to include 100 of his peers who started trading at the same time.
- envsubst 3y agoAre there 100 people who know finance and think carefully like Nassim taleb? What do their outcomes look like? I would bet all of them do pretty well. (I'm not even a big Taleb fan.) This is just like the startup founder argument. Every one which succeeds ends up having a tremendously interesting background demonstrating unique interest and capability.
- vik0 3y agoYes, I am aware of that In the Black Swan he talks about his endeavor with the stock market and how lucky he got by chance, and not by using some pseudo scientific formulas and whatnot to "predict" how his stocks would do. He also gave some pretty good advice when it comes to the stock market The whole book is just awesome, I'd recommend giving it a read
- envsubst 3y agoI have read it. - He isn't a stock trader, he is a bond trader. The kind of bets you need to make to be succesful are different. - "how lucky he got by chance" - He doesn't say this. He talks about how we can even better model uncertainties.
- vik0 3y agoMy apologies, you are correct on the first point. >He talks about how we can even better model uncertainties. Where does he say this? What chapter? Thanks in advance. edit: were you alluding to his barbel strategy?
- satvikpendem 3y agoYou should also read Adaptive Markets by Andrew Lo. It talks about how behavior psychology affects the markets, as Homo Economicus does not really exist, people are not rational actors individually or even at scale in other domains (see, for example, loss aversion) so there is no reason to think we are rational when dealing with the markets either.