Book Review: The Black Swan

Nassim Nicholas Taleb's "The Black Swan" (subtitled "The impact of the highly improbable") is a provocative and interesting read. The real strength of "The Black Swan" is that it prompts the reader to think and, in a few places, challenges some of my beliefs (or at least made me consider them anew). That alone makes me rate the book highly.

Among the book's many high points are the way it produces good reasons why financial analysts, economic forecasters and governments (among others) are not worth taking too seriously (Taleb describes them as being more or less fraudulent). This alone justifies the book as a seriously good read from an investing and financial planning stand point. That said, this is nothing new (see "The Zurich Axioms" by Max Gunther as another example). The track record of people who forecast the future is pretty dismal. Even Nostradamus has a pretty mediocre track record compared to his reputation. His criticisms of classical economic theory are also well expressed (although there was nothing novel in Taleb's views).

I did not agree with all of Taleb's views. As examples (all paraphrased):

1. The problem of the upper bound: I disagree with the notion that there is no practical difference between knowing that there is no upper bound and knowing that there is an upper bound but not knowing where it is. Often there will be no practical difference but in some situations, knowing that there is a limit to the matter under consideration (however uncertain) will have implications for decision making. The turkey problem can illustrate this point. The turkey has no idea of how big he will get, but knows that at some point its growth will come to an end (reach its uncertain upper bound) when it becomes someone's dinner. For the turkey the difference is significant;

2. The reasoning that it is necessary to conceive what technology will be invented in the future in order to predict the future is impossible to obtain because if we could know what technology would be available in the future we would invent it now, thereby rendering the prediction meaningless does not hold up to facts. The concept of a flying machine was conceived centuries before a practical flying machine was built. The concept of space flight was around for decades (at least) before Sputnik.

There were other items as well.

I have mixed views on the barbell strategy. Sure, it would have been an ideal investment strategy over the last year or so with declining stock markets. However, I have to wonder how it would have performed (in both absolute and relative terms) if we had unexpectedly high and persistent inflation.

Taleb's writing can be irritating. He comes across as being overly self opinionated and a man who has a very high opinion of himself (and a low opinion of many other people). It would have been a more pleasant read if the author had been a little bit more humble in expressing his views.

In conclusion, a very thought provoking and interesting read. Highly recommended.