The Fool Walking Randomly, written by nassim taleb, is a distinguished professor of new york University and the most legendary hedge fund manager on Wall Street. After three crashes in the US stock market, he still made a lot of money. His masterpieces include Black Swan and Anti-Fragility.

Taleb pointed out in The Fool Walking Random: "Your success is not necessarily because you are better than others, but probably the result of luck." He told us the law and operation mode of this random world from a profound and unique perspective. This book is the basic work of black swan theory and a must-read classic for dealing with uncertainty in financial investment. This is not only a business investment book, but also a philosophy book full of life wisdom.

1. Randomness of making money

In the financial and commercial society, one of the most common misjudgments people make is that all business and investment achievements come from hard work, diligence and intelligence. However, what people don't realize is that many of these achievements actually come from randomness.

Taleb summed up this phenomenon in one sentence: "We often think that traders can make money because they are good traders. Maybe we should take the consequences as the cause: we think they are good traders just because they make money. It is possible for a person to make money in the financial market (short-term) by relying entirely on random phenomena. "

If Taleb's words only describe the phenomenon, an example given by Warren Buffett clearly shows what "making money can come from randomness". Using Monte Carlo generator, the author fictionalizes 1, investment managers, assuming that each of them has an equal probability of earning and losing: at the end of the year, everyone has a 5% probability of earning 1, dollars and a 5% probability of losing 1, dollars. Once a manager's performance is poor in a certain year, it will be removed from the sample. The Monte Carlo generator will toss a coin. If it is positive, a manager will earn $1, that year. If there is a reverse, you will lose $1 thousand. At the end of the first year, it is expected that 5, managers will earn $1, each and 5, managers will lose $1, each. Then simulate the second year. Similarly, 2,5 managers are expected to make profits for the second year in a row. In the next year, it will be 125, in the fourth year, it will be 625, and in the fifth year, there will be only 313. In the game of 5-5 odds, there are now 313 managers who have made profits for five consecutive years. This "ability to make money" is purely based on luck.

2. Beware of the "black swan"

The biggest risk is not the risk you think, but the huge risk you never dreamed of. History shows that the biggest risk is often the "black swan incident". The "black swan incident" has four characteristics: it is very rare; The impact is very huge; Although there are many explanations afterwards, it is impossible to predict beforehand; You can take precautions in advance.

in probability theory, if the result of a thing is too heavy, then it doesn't matter how high the probability of its success is and how much the reward it gets after its success, and it doesn't really matter, and it doesn't make any sense. For example, suppose there is an eccentric and boring tycoon who takes out $1 million to play Russian roulette with you. He prepares a revolver, and the magazine with six bullets only holds one bullet, and then pulls the trigger at your head. Every time you pull the trigger, it is called a period of history, so there are 6 periods of history, and the probability of each period is the same. Five of them will make you rich, while the other one will lead to a statistic, that is, an embarrassing but creative obituary of the cause of death. No matter how many opportunities there are to make a fortune, it is not worth earning, because no one can bear the worst result.

Therefore, be very careful about the black swan. Even if it can make a lot of money, it must not risk losing everything if it fails. To put it more bluntly, you can't afford to be taunted and you can afford to hide. This is the biggest inspiration from Taleb's two books and Buffett's life-long investment experience.

Buffett's secret of success can be summarized into two basic points: one is to achieve great success, and the other is to avoid big risks. Only when you make great achievements can you make a lot of money, but it is more important to avoid big risks. Many people made great achievements at first, but later failed to avoid big risks and died miserably. Only a few people live to the end, earn to the end and laugh to the end.

Third, control random phenomena

A person who has a good skill but is poor will eventually climb up, while a lucky fool may rely on some good luck in life for a short time, but in the long run, his situation will gradually approach that of a fool who is not so lucky.

Therefore, a truly successful investor must have the ability to control random phenomena and avoid random errors. The author talks about two skills:

1. Avoiding path dependence

The reason why we cling to an idea is only because we spend more time on it. Because we invest more, we will find it more valuable and don't want to give it up easily. This preconceived idea is a nature of most of us. This trait of not sticking to ideas is really rare among human beings, just like treating our own children. We spend a lot of food and time on them and love them for life. However, not sticking to your own ideas is a sign of self-confidence.

The author cites the example of Soros, a financial tycoon. One of his strengths is that he overturns his previous opinions with a snap of his fingers and corrects his opinions at a fairly fast speed, and he is not embarrassed at all. On one occasion, Soros and his friends said in a conversation that they were very bad about the market outlook and told a series of complicated truths. Soros obviously sold short in the market. A few days later, the market soared to a new high. A friend worried that Soros might lose money in the position he established and asked him if he had lost money. "We made a big profit," Soros said. "I changed my mind, not only covering short positions, but also building a big long position." It is this trait that dares to subvert his own inherent cognition that makes everyone wonder what Soros will do next.

The real speculators like Soros are different from others in that their behavior lacks path dependence. They are completely free from past behavior, and every day is a blank sheet of paper.

2. Learn to block noise

The author believes that the price changes in the stock market are very random, and most of them are insignificant small fluctuations. In this random event, every time we observe non-noise in a year, there will be .7 times of noise; In a month's time, every time you observe non-noise, there will be about 2.32 noises; In an hour, every time there is no noise, there are 3 noises; In one second, every time there is no noise, there are 1796 noises.

Therefore, after selecting a stock, try not to watch the real-time stock price fluctuation. People who stare at the market all day feel as if they have mastered a certain rhythm, but the author thinks it is actually a waste of time. Similarly, the author thinks that the news with short time scale is full of noise, while the noise in the history with long time scale has been eliminated. This can explain why people who pay too close attention to randomness will be burned, and they are emotionally exhausted because they experience a series of pains.

There are many possibilities in history. We should not be confused by a short process of history, but look at everything in a larger historical scope. Only by deeply realizing that we live in a random world can you face life better. I hope each of us can walk and dance freely in this random world.