The Black Swan: The Impact of the Highly Improbable by Nassim Nicholas Taleb.

Main lesson of the book: Events outside of our imagination can and will happen.

This book is a lot more philosophical than the other books I’ve read so far. And within that lies its value. This book tackles the need for humans to simplify and quantify the world around them. There is a false believe that everything in this world can be broken down with numbers and explained through math. The beauty of this is that they tend to use these math based models as a tool to predict the future. With the mind state of “To know where you are going you need to know where you have been” or “History repeats itself.” Its this exact belief that by reading history  we are able to predict the future. The problem with that way of thinking is that we tend to think that nothing extreme will happen that can upset or drastically change the future that we imagined. And right there is where Nassim came in and coined the terms Mediocristan and Extremistan.

In Mediocristan everything is standard and no big deviations happen. Whereas in Extremistan one event can destroy all preconceived notions and disrupt everything that was prepared. We humans love to act as if we are living in Mediocristan and what happened before can be used as a point of reference to what might come. The book gives the perfect example for this. Imagine a turkey that for the last 1000 days has been fed by humans. It would be a safe assumption for the turkey to make that humans are trustworthy and that being fed is the standard way of life. Until day 1001 when the turkey is brought to the slaughterhouse. This event was outside of what the turkey expected. There were no signs of it coming, there were no possible indications of what might happen. To the turkey this was a Black Swan. An event that he did not even imagining happening.

There were several Black Swans that shaped our world. The Black Swans had a lot more impact on our world than we think. We tend to think that inventions and revolutionary events happen because of constant effort. But a lot of our greatest accomplishments are due to sheer accident. Nassim makes it a point in this book to make sure that the reader understands that luck plays a major rule in success. Perhaps more so than actual skill or talent. Bad luck or good luck are often outside of our control. But humans tend to be over positive with their thinking and always hope that they will be the lucky ones. And what’s more, the lucky ones often think that they got where they are because of their skills and perseverance and not luck. Because how in the world could luck bring them where they are? Nassim brings up an amazing point and that is that humans always tend ignore the graveyard filled with people who have the exact same qualities but lacked luck. So many people are diligent, motivated, positive, focused. They persevered, they sacrificed their time and money and worked to the best of their abilities to gain what they wanted. But they didn’t make it, and we will never hear their stories because of that. And the simple reason they didn’t make it, is because they weren’t lucky enough to get that break.

Another amazing point the book makes is the concept of silent evidence. This point was without a doubt one of my favorite points in the book. The example the book uses is the story of worshippers praying and then surviving a shipwreck. Which shows us that praying will help you survive a calamity. But the question you should then ask is “what about those who prayed and still drowned?” Society is based on confirmation and because of that we get what can be called Confirmation Bias. Because our facts and reality will then be based on what we can verify. And there is a lot of comfort in that and perhaps that is why we tend to do that. The issue however is that there is an infinite amount of things we don’t know and by only focusing on what we do know we can get surprised by a Black Swan. Silent evidence teaches us to focus on what we don’t know or what gets ignored when reality is presented to us. There are literally millions of poets (or what this current generation would call poets) on Instagram, but there are but a few who can make a living with their writing. Now some people would believe that they became famous because of their immaculate writing abilities and promotional prowess. But I can promise you without fail, that within the million other poets on Instagram you will find those similar in talent and marketing ability but with a lot less followers. Never discount the power of luck when dealing with success.

Nassim has a very strong distaste for the Gaussian Bell Curve which seems to be the “natural” enemy of the Black Swan. The Gaussian Bell curve focuses on the theory that things can be normally distributed and things can be calculated using a standard deviation. The issue with the Bell Curve is that it doesn’t account for extreme events that will completely destroy the model. And I feel like this is the point that Nassim wants to make with the book. People want to force the world into a “normal” model that can be understood and read as a simple mathematical equation. The Modern Portfolio Theory which focuses on managing risk and using it to the benefit of the investor was based on the Bell Curve. The Modern Portfolio Theory actually won a Nobel Prize. What is surprising is that this Theory which focuses on creating a safe investment strategy was completely annihilated by a market crash which can only be described as a Black Swan. A system designed for risk management can only be as effective as the risk it can foresee. And therein lies the beauty of the Black Swan, it lies outside of the imagination of the person or people experiencing it.

The turkey literally died from surprise but for the butcher it was nothing more than a day at the office. The key to understanding the Black Swan is that it can’t be understood. History doesn’t go backwards, it moves forward. You can not think that a Black Swan will repeat itself simply because you think you understand why it happened and see the same things happening again. The world is a lot more complex than we would like it to be. And no matter how much we try to control everything around us we will always be surprised by things that we didn’t expect or account for. It is impossible to know everything and thus is it impossible to predict anything. And try as you may, you will only fail. The most you can do is try to look at your prediction and try to find where you went wrong and why. This is something I wish a lot of bankers and stock brokers did.

I learned a lot from this book. There is no certainty in this world as long as there are things that I don’t know. And I will never know everything. A very humbling feeling to know that.