Black Swan Part 2
Black swan is the randomness in our life. There is no way to predict it for we are only able to know it is one after we have experienced it. It can be both positive and negative at the same time. Negative being natural disaster and positive being a sudden lucky break in a pop star's career or maybe the suddenly popularity of a book like harry potter.
So how do we try to avoid it or predict it? We don't. What we can do it just to prepare ourself for anything that can happen to us. This is not to say that we should not try to predict the future but what we should do is to look at how black swans can hurt us or help us. We should look at the result instead of the black swan itself. This means to say if we were to invest in stocks, we should invest in the most stable one (90% maybe) and the most unstable (10%). The most stable one will allow us to avoid black swan from happening for even a major change will not cause much of a difference (also known as mediocristan), while the most unstable will allow us to enjoy the profits if a positive black swan is to happen to us but at the same time will also not hurt us much if something negative were to happen because we will only invest about 10%. Although this sounds like a farfetched example, it can actually be applied to many things in our life.
Also, we shouldn't be too particular about randomness and chances just because of all this talk about the black swan. Instead we should allow for contingency to enter our life and let it be. Because infinite vigilance is just not possible. We should continue to look at things normally and not look at them with skepticism.
One interesting example i found in this book is the way the author disprove induction with a simple example. Imagine a turkey is being fed everything for the pass 100 days. To the turkey, as each day passes by, the probablity of the next day being fed increases. However, after 100 days, the turkey was suddenly killed which defies the the fact previously established rule. This is the same things with everything in our life. Due to randomness, our life is not symetrical, yesterday compared to today is not the same as today compared to tommorrow. Black swan events are asymetrical with no rule to them and no chance of prediction.
People like to believe in economist and investors because they believe that these people are able to predict the future. However, most of the time they are actually unable to predict accurately because they do not have enough facts or simply have too much facts. How many people are actually going to predict the length of the war in lebanon and when it is going to start and end. Even with such information, the so called professional might be blinded by these information and still unable to forecast anything due to the black swan effect. It has been proven by research that the accuracy of their prediction is not much different from those of taxi drivers sometimes. So when an investor tells u about all his inside information and special statistiscal table, do not believe them as they are and take it with a pinch of salt. You never know what might happen tommorrow and can't and will never be able to predict the future. It is precisely the randomly that gives the future its definition, if not we will always be living in the history because we already know what is going to happened. Sometimes human themselves must realise that to know about the future is to know about the now which is not possible logically.
So how do we try to avoid it or predict it? We don't. What we can do it just to prepare ourself for anything that can happen to us. This is not to say that we should not try to predict the future but what we should do is to look at how black swans can hurt us or help us. We should look at the result instead of the black swan itself. This means to say if we were to invest in stocks, we should invest in the most stable one (90% maybe) and the most unstable (10%). The most stable one will allow us to avoid black swan from happening for even a major change will not cause much of a difference (also known as mediocristan), while the most unstable will allow us to enjoy the profits if a positive black swan is to happen to us but at the same time will also not hurt us much if something negative were to happen because we will only invest about 10%. Although this sounds like a farfetched example, it can actually be applied to many things in our life.
Also, we shouldn't be too particular about randomness and chances just because of all this talk about the black swan. Instead we should allow for contingency to enter our life and let it be. Because infinite vigilance is just not possible. We should continue to look at things normally and not look at them with skepticism.
One interesting example i found in this book is the way the author disprove induction with a simple example. Imagine a turkey is being fed everything for the pass 100 days. To the turkey, as each day passes by, the probablity of the next day being fed increases. However, after 100 days, the turkey was suddenly killed which defies the the fact previously established rule. This is the same things with everything in our life. Due to randomness, our life is not symetrical, yesterday compared to today is not the same as today compared to tommorrow. Black swan events are asymetrical with no rule to them and no chance of prediction.
People like to believe in economist and investors because they believe that these people are able to predict the future. However, most of the time they are actually unable to predict accurately because they do not have enough facts or simply have too much facts. How many people are actually going to predict the length of the war in lebanon and when it is going to start and end. Even with such information, the so called professional might be blinded by these information and still unable to forecast anything due to the black swan effect. It has been proven by research that the accuracy of their prediction is not much different from those of taxi drivers sometimes. So when an investor tells u about all his inside information and special statistiscal table, do not believe them as they are and take it with a pinch of salt. You never know what might happen tommorrow and can't and will never be able to predict the future. It is precisely the randomly that gives the future its definition, if not we will always be living in the history because we already know what is going to happened. Sometimes human themselves must realise that to know about the future is to know about the now which is not possible logically.
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