March 13, 2025 • 7 mins
Don’t be fooled by market hype! Chris Markowski dives into Nassim Taleb’s Fooled by Randomness, exposing how luck masquerades as skill in investing. Learn to avoid hindsight bias, embrace skepticism, and build a portfolio with a margin of safety. www.watchdogonwallstreet.com
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Episode Transcript
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Speaker 1 (00:00):
The Watchdog on Wall Street podcast explaining the news coming
out of the complex worlds of finance, economics, and politics
and the impact it we'll have on everyday Americans. Author,
investment banker, consumer advocate, analyst, and trader Chris Markowski.
Speaker 2 (00:16):
Don't be fooled again? Yeah, well it was. Won't be
fooled again by the who. I want to address this
again to all the investors, traders, whatever you want to
call yourself out there that have been battered and beat
down as of late. And how am I going to
(00:39):
do this? I am going to go And I've talked
about NASA, Nicholas Talib, philosopher, risk management expert, a myriad
of different things on a myriad of occasions here. I'm
a big fan of his work, his philosophy in regards
to risk management to something that we apply. Again. I
(01:02):
get this sometimes question people, who is that guy? What
did he do? What did he say? What does he mean? Well, okay,
I want to talk a little bit about his first book,
was Fooled by randomness human beings? And this is important. Okay,
they don't unfortunately, they don't teach this stuff to kids
(01:23):
in college and to money managers. It really is unfortunate.
Human beings overestimate all the time what they knew at
the time of an event. This is due to information
(01:44):
that they get after the fact. That This is something that
is called hind site bias. Human beings brains are not
made to analyze why things happen exactly. Takes time, and
quite frankly, it's less relevant than what happens what will
happen next. When you have a portfolio, you have to
(02:10):
assign possibilities, things that could happen various different scenarios. After
something happens, you won't be like, you know, thinking that
it was obvious all along. You won't do that. Another
thing that I've learned over the years is oftentimes luck
(02:33):
luck is mistaken as skill. There's one world in which
I believe the habit of mistaking luck for skill is
the most prevalent and most conspicuous, and that's the world
(02:54):
of markets. Markets are the perfect place to mistake luck
for skill. It's talib had to say the real risk
an investor took is impossible to know. Investing processes are opaque.
There's an incentive to look skilled, and quite frankly, investors
(03:16):
want to believe that people are geniuses. They want to
believe in guru's market wizards. They want to believe that
they can do all of these magical things. They can't.
I want to tell you a quick story. This is
going back at time. This is how to be maybe
two thousand and three, two thousand and four, can't remember exactly.
(03:39):
This gentleman happened to be in Venice, Florida. Wanted to
wanted to sell us his firm, wanted to sell us
his office. So we had a meeting with this gentleman.
It was an interesting individual, and no what he was
doing most sly was not for us. But again he
started bragging, started bragging about the time that he had
(04:02):
this fund that he started. It was in nineteen eighty seven,
started a fund in nineteen eighty seven, and he was
touted as this huge guru all over the news that
showed us, oh, top performing funds. How did these people
know about the stock October market crash? Well, as it
(04:24):
turned out, he raised the money for his fund, and
he was done raising the money by summer summer of
nineteen eighty seven. The SEC didn't allow him to start
trading until much later on. He didn't have all of
his all of his I don't know all his paperwork
(04:45):
in order, so he was sitting fully in cash when
the market crashed in October of eighty seven, and all
the media picked up on that and say, oh my god,
this guy was totally in cash. What a smart money manager?
Yeah right. Another thing Talent talks about Fooled by Randomness
(05:08):
is the world is ever changing. What's right today can
be wrong tomorrow when the circumstances change. Being married to
ideas is a safe way to an unsuccessful investing career.
Opinions and ideas should change with the facts I wrote.
(05:29):
I wrote about this actually before Talent wrote Fooled by Randomness,
I wrote a story call called even blue Chips Die.
And you know this idea out there that, oh my god,
that company could never go under? Right, Sure you ever
hear the Dutch East India company two hundred years paying
an eighteen percent dividend. That's a blue chip? It is
(05:51):
no longer probability and skepticism. In reality, probabilities aren't a
mathematical problem as they are in textbooks. We don't know
the different scenarios, We don't know any odds, So it's
not about solving a mathematical problem. It said, it's about
being attentive to the fact that we don't know everything
(06:13):
we would need to know. We're dependent on a little
bit of luck sometimes. Okay, so you have to have
a margin of safety. You do not let risk lead
to ruin. How to judge one performance return and risk again,
(06:37):
not letting risk lead to ruin Again. Unfortunately, too many
people just take a look at the return and not
the process. What people are doing. This is what causes
what's called survivorship bias and talent gives the example, say
a ceo CEO saves his company from going under by
(07:02):
playing a round of Russian Roulette. Bullet doesn't go off.
Help it worked that time, But you want to do
that process again? Does that process make sense? No? No,
and again He's all wrote another book called you Know
(07:23):
the Black Swan and taking a look at random catastrophes
that hand them and how you go about surviving those
random catastrophes. You always have to understand as an investor
what type of losses you can take, and you have
to be able to get out of certain situations. You
(07:43):
do that, Okay, you won't be fooled again. Watchtog on
Wall street dot com,
The Watchdog on Wall Street podcast explaining the news coming
out of the complex worlds of finance, economics, and politics
and the impact it we'll have on everyday Americans. Author,
investment banker, consumer advocate, analyst, and trader Chris Markowski.
Speaker 2 (00:16):
Don't be fooled again? Yeah, well it was. Won't be
fooled again by the who. I want to address this
again to all the investors, traders, whatever you want to
call yourself out there that have been battered and beat
down as of late. And how am I going to
(00:39):
do this? I am going to go And I've talked
about NASA, Nicholas Talib, philosopher, risk management expert, a myriad
of different things on a myriad of occasions here. I'm
a big fan of his work, his philosophy in regards
to risk management to something that we apply. Again. I
(01:02):
get this sometimes question people, who is that guy? What
did he do? What did he say? What does he mean? Well, okay,
I want to talk a little bit about his first book,
was Fooled by randomness human beings? And this is important. Okay,
they don't unfortunately, they don't teach this stuff to kids
(01:23):
in college and to money managers. It really is unfortunate.
Human beings overestimate all the time what they knew at
the time of an event. This is due to information
(01:44):
that they get after the fact. That This is something that
is called hind site bias. Human beings brains are not
made to analyze why things happen exactly. Takes time, and
quite frankly, it's less relevant than what happens what will
happen next. When you have a portfolio, you have to
(02:10):
assign possibilities, things that could happen various different scenarios. After
something happens, you won't be like, you know, thinking that
it was obvious all along. You won't do that. Another
thing that I've learned over the years is oftentimes luck
(02:33):
luck is mistaken as skill. There's one world in which
I believe the habit of mistaking luck for skill is
the most prevalent and most conspicuous, and that's the world
(02:54):
of markets. Markets are the perfect place to mistake luck
for skill. It's talib had to say the real risk
an investor took is impossible to know. Investing processes are opaque.
There's an incentive to look skilled, and quite frankly, investors
(03:16):
want to believe that people are geniuses. They want to
believe in guru's market wizards. They want to believe that
they can do all of these magical things. They can't.
I want to tell you a quick story. This is
going back at time. This is how to be maybe
two thousand and three, two thousand and four, can't remember exactly.
(03:39):
This gentleman happened to be in Venice, Florida. Wanted to
wanted to sell us his firm, wanted to sell us
his office. So we had a meeting with this gentleman.
It was an interesting individual, and no what he was
doing most sly was not for us. But again he
started bragging, started bragging about the time that he had
(04:02):
this fund that he started. It was in nineteen eighty seven,
started a fund in nineteen eighty seven, and he was
touted as this huge guru all over the news that
showed us, oh, top performing funds. How did these people
know about the stock October market crash? Well, as it
(04:24):
turned out, he raised the money for his fund, and
he was done raising the money by summer summer of
nineteen eighty seven. The SEC didn't allow him to start
trading until much later on. He didn't have all of
his all of his I don't know all his paperwork
(04:45):
in order, so he was sitting fully in cash when
the market crashed in October of eighty seven, and all
the media picked up on that and say, oh my god,
this guy was totally in cash. What a smart money manager?
Yeah right. Another thing Talent talks about Fooled by Randomness
(05:08):
is the world is ever changing. What's right today can
be wrong tomorrow when the circumstances change. Being married to
ideas is a safe way to an unsuccessful investing career.
Opinions and ideas should change with the facts I wrote.
(05:29):
I wrote about this actually before Talent wrote Fooled by Randomness,
I wrote a story call called even blue Chips Die.
And you know this idea out there that, oh my god,
that company could never go under? Right, Sure you ever
hear the Dutch East India company two hundred years paying
an eighteen percent dividend. That's a blue chip? It is
(05:51):
no longer probability and skepticism. In reality, probabilities aren't a
mathematical problem as they are in textbooks. We don't know
the different scenarios, We don't know any odds, So it's
not about solving a mathematical problem. It said, it's about
being attentive to the fact that we don't know everything
(06:13):
we would need to know. We're dependent on a little
bit of luck sometimes. Okay, so you have to have
a margin of safety. You do not let risk lead
to ruin. How to judge one performance return and risk again,
(06:37):
not letting risk lead to ruin Again. Unfortunately, too many
people just take a look at the return and not
the process. What people are doing. This is what causes
what's called survivorship bias and talent gives the example, say
a ceo CEO saves his company from going under by
(07:02):
playing a round of Russian Roulette. Bullet doesn't go off.
Help it worked that time, But you want to do
that process again? Does that process make sense? No? No,
and again He's all wrote another book called you Know
(07:23):
the Black Swan and taking a look at random catastrophes
that hand them and how you go about surviving those
random catastrophes. You always have to understand as an investor
what type of losses you can take, and you have
to be able to get out of certain situations. You
(07:43):
do that, Okay, you won't be fooled again. Watchtog on
Wall street dot com,
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