The Black Swan (Nassim Nicholas Taleb)

Trader's Library #54 · Risk, chance and decisions. A warning about a world of fat tails, where models fail.

Author: Nassim Nicholas Taleb · Original: The Black Swan · Year: 2007 · Usefulness for traders: ★★★★☆

What it's about

A book about rare, unpredictable events with enormous consequences. Taleb criticises models that assume a normal distribution, forecasting, and experts who explain after the fact what they failed to predict.

What it gives a trader

For a trader it's a lesson about fat tails: the market makes moves that according to the models “shouldn't happen”. The practical conclusion: you don't know when a black swan will arrive, but you can make sure it doesn't destroy you.

Lessons for traders

• extreme events happen more often than models assume
• after the fact everything looks predictable (hindsight bias, Atlas of biases #27)
• protect yourself from disaster instead of predicting its date
• absence of evidence of risk isn't evidence of absence of risk

What to watch out for

Long-winded, with many digressions. The term “black swan” is often misused for events that were predictable.

Discussion

The discussion takes place in Hetman Capital Club (in Polish). Join the discussion in the Club →

Navigation

← #053 The Poker Face of Wall Street (Aaron Brown) · Library index · #055 Taleb: Antifragile, Skin in the Game and The Bed of Procrustes →

Educational content, not investment advice. The book description is my own summary and assessment, not quotations. Edition details were checked in catalogues and bookshops, and where there was doubt I said so plainly.