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Best Books I Read Last Year

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Books that should be read more than once.

Antifragile: Things That Gain from Disorder
While Taleb’s previous two books—Fooled by Randomness and The Black Swan—focused on overconfidence and underestimation of risk, Antifragile is the antidote on how we can reduce fragility and in the process, gain from disorder and randomness.

Antifragile provides a view that doing something supposedly harmful (not too much) can be beneficial. Here are some examples:

  • An adequate amount of stress is productive.
  • A controlled, localized forest burning reduces the chance of a full-scale firestorm.
  • Some physical activities such as weight training increase old people’s lifespan.
  • Exposing the body to a deadly virus like Measles can acquire life-long immunity.
  • Allowing big banks to collapse is healthy for the overall financial system.
This concept is widely applicable to both lives in general and in investing. The rule of thumb is you want to make more antifragile decisions and avoid decisions that increase fragility. A simple way to find out if a decision will do more harm in the long-term—makes you fragile—is to ask what happens when randomness is high.

Take margin loan for example. It is a great way to magnify gains. But it increases fragility because when randomness is high, you are forced to cover your positions. And in most cases, you blow up overnight. What about cut-loss? Having a cut-loss point works in normal conditions. But under extreme conditions when the market collapses, any speculative position will put a hole in your portfolio because there isn’t any buy-side liquidity.

If you notice the examples above, it is all about understanding what’s the maximum risk, or the worst-case scenario. The reason is that finance and investing is non-ergodic. Or what I called don’t cross a river that’s average 4 ft. deep. Ole Peters, an External Professor at Santa Fe Institute, describes antifragility as a way to achieve more ergodicity. How do you do that? Taleb suggests a barbell investment strategy: 50% investment in a safe haven i.e low risk fixed investment such as bonds and the rest in high risk venture.

Now you don’t have to necessarily agree with Taleb but once you understand antifragility, it can be a very powerful thinking tool. You can start thinking about what aspects of your portfolio are fragile. What about companies? What kind of businesses are the most vulnerable when randomness is high? What about life? Do you have any habits that increase fragility? Can you change that?

Seth Klarman once said “Accepting that we cannot predict the future—i.e., that there will always be unexpected and highly consequential events—is the first step in becoming less fragile and more adaptable. People should be highly skeptical of anyone’s, including their own, ability to predict the future, and instead pursue strategies that can survive whatever may occur.”

Range: How Generalists Triumph in a Specialised World
I like this book because it is reminiscent of the foxes and the hedgehogs in Philip Tetlock’s book Superforecasting. The hedgehogs know one big thing while the foxes know many things. Foxes are generalists, like an army Swiss knife that can do multiple tasks. Robert Hagstrom called investing ‘The last liberal art’ because it requires a good understanding of a wide range of fields if one is to succeed. It is also what Charlie Munger called a latticework of mental models—having many tools in your toolbox to solve unique problems.

If you zoom out and look at the big picture, investing is about solving problems. We have to answer questions like “Can this stock continue growing?” What is the right price to pay? How will the industry dynamic affect the business? How much should I have this stock in my portfolio? etc.

In one of the studies, Epstein wrote: “successful problem solvers are more able to determine the deep structure of the problem before they proceed to match a strategy to it.” That’s another way of saying you need to understand the fundamentals and see the problem from many different perspectives.

We currently live in a wicked world. One that requires plenty of abstract thinking, thought experiment, learning without experience, and one that can only be achieved by studying broad concepts from many different domains. The business world is wicked. No two companies out there are alike. Each is unique in its way. Even those that succeed don’t use the same strategy or follow a specific path. When we encounter a situation we’ve never seen before, we tend to apply categorical thinking. We group companies by attributes such as a similar P/E ratio, by industry, and so on because it makes it easier for us to solve the problem. But an even better way is to apply abstract and analogical thinking.

“Breadth of training predicts breadth of transfer…the more contexts in which something is learned, the more the learner creates an abstract model, and the less they rely on a particular example. Learners become better at applying their knowledge to a situation they’ve never seen before, which is the essence of creativity.”

According to the Future of Jobs Report, the top 3 skills in 2020 are complex problem solving, critical thinking, and creativity. As we move towards industry 4.0—automation and data exchange in manufacturing technologies and processes, internet of things, artificial intelligence, learning to be like a fox becomes more of a necessity than a luxury.

Barking Up the Wrong Tree: The Surprising Science Behind Why Everything You Know About Success Is (Mostly) Wrong
I’ve been following Eric Barker’s blog for some time when he wrote this book. I wasn’t expecting much from this book, perhaps just a compilation of his blog posts. I was wrong. Barker has produced a well-researched book with amazing narratives on how to be successful.

Barker looks into what produces success by answering some perplexing questions we often encounter in life over a large variety of situations from career, relationship to finance and business. Should we play safe or risk it all? Do nice guys finish last? Do quitters never win or winners never quit? Is it what you know or more about who you know? Is it all about work or work-life balance? etc.

If you want a concise answer: it depends. Nothing is absolute in life. That is, what is the right decision to make often depends on the context of the situation. There is rarely ever a time where if A is good, doing A is good under all circumstances. Context matters because success cannot be condensed into a single formula. It is more about learning how to do the right thing at the right time. On top of these, know your strength, tell yourself a positive story, and practice self-compassion, these are the ingredients to a happy life.

Barker sums up what you need to do to succeed this way, “What’s the most important thing to remember when it comes to success? One word: alignment. Success is not the result of a single quality; it’s about alignment between who you are and where you choose to be. The right skill in the right role. A good person surrounded by other good people. A story that connects you with the world in a way that keeps you going. A network that helps you, and a job that leverages your natural introversion and extroversion. A level of confidence that keeps you going while learning and forgiving yourself for the inevitable failures. A balance between the big four that creates a well-rounded life with no regrets.”

Alchemy: The Surprising Power of Ideas That Don’t Make Sense
I like this book simply because it leaves me thinking “Why didn’t I think of that?”

Rory Sutherland draws from his wonderful observation, knowledge in psychology, as well as an understanding of evolutionary theories to deliver a book pack full of deep insights and wisdom that explains why solving real-world problems psychologically can be cheaper and more effective than logical solutions.

Psychology is more than just a trick or magic, but a powerful way to solve problems that are often ignored in favor of rational, logical solutions. Sutherland provides many anecdotes, ideas and counterintuitive answers to why we brush our teeth, why bank branches have marble countertops, or how to reduce travel time without making the train go faster. These questions seem trivial but unveil deeper psychological reasons why things are the way they are.

I used to think that to succeed in life or at least in the stock market you need to be as rational as possible. I was wrong. At least that is only partially true. You need to have good self-control rather than letting emotions go rampant, of course. But when it comes to identifying investment ideas and figuring out a product or service’s value proposition, think less rationally. Because if you always see things from a rational lens, you are going to missed out the deeper psychological reasons why people own Ferrari, why do people buy an overpriced Dyson vacuum cleaner, why do people pay more for Starbucks coffee (or put their coffee in a Starbuck mug), or why do we fit ourselves in uncomfortable denim pants called jeans, together with the opportunities to invest in them. Eccentricity can give you an edge. An alchemy rule that’s worth thinking: Efficiency is a disadvantage when everyone wants to be efficient.

Here’s a thought from reading this book: Companies that sell products or services to solve problems psychologically are likely to have a strong moat, good margins, and high profitability.

Where Good Ideas Come From: The Seven Patterns of Innovation
Steve Johnson looks across many domains from biology, society, business, to information networks and ecosystems to understand the essence of creativity, how each domain finds solutions, and if any commonalities form the fabrics of innovation?

This book is similar to Antifragile in a way that all the concepts are applicable in life and in investing. It is as if you’ve been handed a box of colorful Lego blocks and the only limitation to creating something new is your imagination.

One can think of these seven patterns of innovation—the adjacent possible, liquid networks, the slow hunch, serendipity, error, exaptation, and platforms—as mental models. If you want to be more creative, be good at problem-solving, or develop second-level thinking, these seven models are your buffet. What if you want to improve your chances of finding new ideas in the stock market? You need liquid networks, serendipity, and platforms. Improve analytical skills? Try the adjacent possible, slow hunch, and error. If you want to understand (or find) disruptive technologies or companies, exaptation, error, and platforms are the DNA.

Here’s an example of how I use liquid networks to understand the idea of changing your mind. Liquid networks are a metaphorical way of saying liquid state (think water), as opposed to gaseous (vapor) or solid-state (ice-cube), is the ideal medium that produces good ideas. When scientists look for signs of life on other planets, the first question they ask is ‘Is there any water?’ Because water enables chemicals permutation that is essential to life existence.

Coming back to my example. We can think of liquid networks as a way to stay open-minded by allowing the exchange of diverse information. Having a strong conviction in the market, sticking to your belief can be an advantage when Mr. Market has gone maniac. But it can backfire as well when you refuse to change your mind even when there’s overwhelming evidence that you’re wrong. This is a mind in a solid-state. On the other hand, changing your mind as fast as the wind is a good thing when uncertainty is high but not sticking to an idea long enough means it’s hard to see profit. This is a mind in a gaseous state. So the happy medium is to stay in a liquid state of thinking. Strong conviction, weakly held. Always be ready to challenge your thinking and having the ability to hold two conflicting information in your mind.

Thinking in Systems
One of the books that I’ll turn towards for many years to come. I’ve talked about this book previously. If you want to understand the underlying structure that governs all system behaviors, why systems work so well, why they surprise us, this is the book.

Systems sound abstract but it is all around us. Your habits, relationships, company you work for, the sports games you watch, they are all systems. In the context of investing, why companies profits oscillate, the structure of growth, how excessive growth can destroy the structure that sustains it, why companies commit fraud, why some companies thrive while others don’t etc, they’re all systems and subsystems.

Thinking in systems is like looking at a skeleton watch. Besides the minute hand and hour hand moving on the surface, you also see all the inner workings, how the wheels, springs, levers, etc all work together to move those hands. Those components are the system structure of the watch that produces its behavior—the minute hand makes one revolution every hour while the hour hand makes two revolutions every 24 hours. And these behaviors produce a series of events over time—tells you what’s the time now.

Let’s bring this into the stock market. Things that you see in the market—daily news eager to grab your attention, prices moving up and down, exchange rate movements etc, these are events, just like the watch telling you the time. Events capture our attention but they’re also not the most important. As Donella Meadows wrote:

“Systems fool us by presenting themselves—or we fool ourselves by seeing the world—as a series of events. The daily news tells of elections, battles, political agreements, disasters, stock market booms or busts. Events can be spectacular: crashes, assassinations, great victories, terrible tragedies. They hook our emotions. Like the tip of an iceberg rising above the water, events are the most visible aspect of a larger complex—but not always the most important.

When a system thinker encounters a problem, the first thing he or she does is look for data, time graphs, the history of the system. That’s because long-term behavior provides clues to the underlying system structure. And structure is the key to understanding not just what is happening, but why.”

So when you can “see the world as a collection of feedback processes”, you’re less likely to get surprised or ask meaningless questions like “why did the market (or stock) go down?” And because the stock market is a complex system with many delayed feedback loops, being a system thinker also means you understand how a system structure produces system behavior, therefore you can anticipate or act early before a negative event occurs. As opposed to a linear thinker, which is terrible for an investor, you start to see things as a whole rather than breaking them into components, identify patterns rather than blaming or trying to fix the symptoms, and most important of all, you synthesize information instead of pure analysis.
 
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Books that should be read more than once

@RickyY I'm first to admit you gain knowledge when you have the desire to learn & I'm not critical of members who wanted to learn or buys dozens of books but as the saying goes, if what you learn leads to knowledge, you become a fool - but if what you learn "leads to action", you can become wealthy. The difference between a successful trader is not a lack of knowledge, but rather a "lack of will to action that knowledge". This leads me to ask you a couple of questions:

After reading these books
1. What practical applications have you applied after reading these books to your trading?
2. What knowledge in a condensed form would you like to pass on to help others?

Skate.
 
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@RickyY I'm first to admit you gain knowledge when you have the desire to learn & I'm not critical of members who wanted to learn or buys dozens of books but as the saying goes, if what you learn leads to knowledge, you become a fool - but if what you learn "leads to action", you can become wealthy. The difference between a successful trader is not a lack of knowledge, but rather a "lack of will to action that knowledge". This leads me to ask you a couple of questions:

After reading these books
1. What practical applications have you applied after reading these books to your trading?
2. What knowledge in a condensed form would you like to pass on to help others?

Skate.

I don't think this chap ever engages in the various threads that he starts. Sort of a shame as there are some interesting snippets that are worthy of further discussion.

jog on
duc
 
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@RickyY I'm first to admit you gain knowledge when you have the desire to learn & I'm not critical of members who wanted to learn or buys dozens of books but as the saying goes, if what you learn leads to knowledge, you become a fool - but if what you learn "leads to action", you can become wealthy. The difference between a successful trader is not a lack of knowledge, but rather a "lack of will to action that knowledge". This leads me to ask you a couple of questions:

After reading these books
1. What practical applications have you applied after reading these books to your trading?
2. What knowledge in a condensed form would you like to pass on to help others?

Skate.

Hi Skate, good decision (or actions) comes from good thinking, so whether all these will improve my thinking that lead to me making good decisions down the line, I believe that is a yes, they influenced the way I see things and think about things. But there is also the 'no'. I haven't apply them, or maybe only applied a small percentage of them either because I don't know how to use those knowledge yet or they are entirely inapplicable. Then what is the use if it only remains a knowledge? And you're right. I don't read these books with a goal that these books will suddenly improve my ability to make money from the market by 1x or something. I read them to collect 'dots'. These 'dots' are useless on their own. But hopefully, as I read and think more, I'll be able to connect those dots, that's when knowledge becomes wisdom. But there's a long gestation period between knowledge and wisdom. So there's no guarantee of success. But I think that is the only way to do it. If something is 'efficient' (i.e A cause B), everyone would have exploited A until doing A doesn't yield any advantage. But when something is 'inefficient' where there's no guarantee of success and long gestation period, most won't do it. That's also where potential reward is the highest.

Condensed knowledge that I can pass on to others, I think there are a few:
1. Currently everyone is interested to know if the next big fall is around the corner, I would say don't worry about it. (that is from an investor point of view, not trader).
2. Sometimes, being rational is good, i.e don't do silly things, but it can be dangerous too because market is rarely rational, which means poor calibration between your perception and reality.
3. Volatility clusters. Companies do cap raise to reduce chance of insolvency. But it is also precisely at time like this that their share price are at the lowest; the best time to invest is when there's blood on the street, but it is also precisely during those times that people lost their job and have no money to invest. So lesson is have a lot of buffer, more than what you think you might need.
 
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This is going to come across as negative, which it's not really meant to be, however:

The answer (latest post) to Mr Skate's question has a materially different quality of writing to the original post, which causes me to ask:

(a) Is the original post (and previous posts in that style) some form of academic paper (essay) that is being written for a Uni. course or some-such; or

(b) A summary of these various books gleaned from some other source?

From the latest post it is clear that you are not actually applying the various methodologies that you are writing about, which is fine: but the original post rather implies more practical experience than is actually present. Some (Taleb) you completely miss the point of the book altogether.


The fact remains that if you had practical experience in the markets, much of the theory in this and other posts that you provide; you would have realised, has serious flaws (whether of a practical or theoretical nature).

jog on
duc
 
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This is going to come across as negative, which it's not really meant to be, however:

The answer (latest post) to Mr Skate's question has a materially different quality of writing to the original post, which causes me to ask:

(a) Is the original post (and previous posts in that style) some form of academic paper (essay) that is being written for a Uni. course or some-such; or

(b) A summary of these various books gleaned from some other source?

From the latest post it is clear that you are not actually applying the various methodologies that you are writing about, which is fine: but the original post rather implies more practical experience than is actually present. Some (Taleb) you completely miss the point of the book altogether.


The fact remains that if you had practical experience in the markets, much of the theory in this and other posts that you provide; you would have realised, has serious flaws (whether of a practical or theoretical nature).

jog on
duc


Hi Duc, neither (a) or (b). I write because those books have changed the way I think, so I encourage others to read it. That's it.

I'm happy if you can shed more light on Antifragile.

Yes, my original post has provided some practical application, so I'm not exactly sure why Skate asked if and how I apply those knowledge? Maybe because he wants something specific? But anyway, I replied in a more general answer.

"The fact remains that if you had practical experience in the markets, much of the theory in this and other posts that you provide; you would have realised, has serious flaws (whether of a practical or theoretical nature)." - Don't get this sentence. Elaborate?
 
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(b) A summary of these various books gleaned from some other source?
Duc, it's (b) - @RickyY heart was in the right place by encouraging others to read & learn.
'no'. I haven't apply them, or maybe only applied a small percentage of them either because I don't know how to use those knowledge yet
@RickyY thank you for an honest answer written from the hip.

Categories
Most people fall into a few categories:
(1) doers or ditherers,
(2) optimists, pessimists or leaders.

Knowledge
With knowledge you have the choice to pick one from each category & apply it. It's worth remembering leaders are doers.

"Life is like a dogsled team. If you ain't the lead dog, the scenery never changes"

Everyone want to know - but rarely put into action
"What's the secret to becoming wealthy"? - The graph displays "the answer". If the knowledge doesn't "lead to action", you won't become wealthy. The reason for my previous post was to encourage you to think about turning knowledge into action, nothing more nothing less..

Wealthy Capture.JPG

What I was implying
Very few put knowledge into action.

Skate.
 
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Duc, it's (b) - @RickyY heart was in the right place by encouraging others to read & learn.

@RickyY thank you for an honest answer written from the hip.

Categories
Most people fall into a few categories:
(1) doers or ditherers,
(2) optimists, pessimists or leaders.

Knowledge
With knowledge you have the choice to pick one from each category & apply it. It's worth remembering leaders are doers.

"Life is like a dogsled team. If you ain't the lead dog, the scenery never changes"

Everyone want to know - but rarely put into action
"What's the secret to becoming wealthy"? - The graph displays "the answer". If the knowledge doesn't "lead to action", you won't become wealthy. The reason for my previous post was to encourage you to think about turning knowledge into action, nothing more nothing less..

View attachment 102999

What I was implying
Very few put knowledge into action.

Skate.


Thanks Skate :)

You're definitely right. Whether deliberate or subconscious, it needs to be converted into action.
 
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Duc, it's (b) - @RickyY heart was in the right place by encouraging others to read & learn.

@RickyY thank you for an honest answer written from the hip.

Categories
Most people fall into a few categories:
(1) doers or ditherers,
(2) optimists, pessimists or leaders.

Knowledge
With knowledge you have the choice to pick one from each category & apply it. It's worth remembering leaders are doers.

"Life is like a dogsled team. If you ain't the lead dog, the scenery never changes"

Everyone want to know - but rarely put into action
"What's the secret to becoming wealthy"? - The graph displays "the answer". If the knowledge doesn't "lead to action", you won't become wealthy. The reason for my previous post was to encourage you to think about turning knowledge into action, nothing more nothing less..

View attachment 102999

What I was implying
Very few put knowledge into action.

Skate.


Fair enough.

jog on
duc
 
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Hi Duc, neither (a) or (b). I write because those books have changed the way I think, so I encourage others to read it. That's it.

I'm happy if you can shed more light on Antifragile.

Yes, my original post has provided some practical application, so I'm not exactly sure why Skate asked if and how I apply those knowledge? Maybe because he wants something specific? But anyway, I replied in a more general answer.

"The fact remains that if you had practical experience in the markets, much of the theory in this and other posts that you provide; you would have realised, has serious flaws (whether of a practical or theoretical nature)." - Don't get this sentence. Elaborate?

1. Currently everyone is interested to know if the next big fall is around the corner, I would say don't worry about it. (that is from an investor point of view, not trader).

2. Sometimes, being rational is good, i.e don't do silly things, but it can be dangerous too because market is rarely rational, which means poor calibration between your perception and reality.

3. Volatility clusters.

4. Companies do cap raise to reduce chance of insolvency. But it is also precisely at time like this that their share price are at the lowest; the best time to invest is when there's blood on the street, but it is also precisely during those times that people lost their job and have no money to invest. So lesson is have a lot of buffer, more than what you think you might need.


So using the examples you have provided, (I assume from having gleaned from the literature) I'll simply address those points for the sake of brevity.

1. Whether you are an investor or trader, knowing 'when' something (anything) is going to happen, would provide a licence to print money. Theories abound re. market 'timing' and its impossibility or at least being an endeavour not worth spending much time on. There are many ways (that work) with regard to market timing and they will either (a) reduce risk, (b) increase profits or (c) both of the above, depending on which method employed and how successfully it is employed.

2. Well to quote Mr Graham: in the short term the market is a voting machine, in the long a weighing machine. Even in the short term, the market is rational through the process of price discovery. That is what markets do. The market is always going to include the predominantly emotional and the predominantly rational. One will likely succeed, one will likely fail.

3. Volatility has many properties. That being (under certain circumstances) just one of them.

4. Companies raise capital (a cap raise being a single method) for all sorts of reasons. US based companies have been selling huge amounts of debt at high market valuations because debt is cheap (compared to equity) and using that to buy back stock (amongst many reasons).

So just using the examples provided by yourself and your reading, there is a disconnect from what you have read (possibly theoretical) and market reality, where the rubber meets the road. That is not really a criticism as we have all been there. The key is to separate interesting theory from theory that works in a practical sense and that which, while attractive to academics, is simply a waste of time and effort. It has no practical application or worse, is wrong and costs you money.

This is applicable to any number of (a) trading, (b) investing and (c) other books on the market purporting to be 'how to' books on market strategy etc.

Re. 'Antifragile': I don't do book summaries.

jog on
duc


 
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1. Currently everyone is interested to know if the next big fall is around the corner, I would say don't worry about it. (that is from an investor point of view, not trader).

2. Sometimes, being rational is good, i.e don't do silly things, but it can be dangerous too because market is rarely rational, which means poor calibration between your perception and reality.

3. Volatility clusters.

4. Companies do cap raise to reduce chance of insolvency. But it is also precisely at time like this that their share price are at the lowest; the best time to invest is when there's blood on the street, but it is also precisely during those times that people lost their job and have no money to invest. So lesson is have a lot of buffer, more than what you think you might need.


So using the examples you have provided, (I assume from having gleaned from the literature) I'll simply address those points for the sake of brevity.

1. Whether you are an investor or trader, knowing 'when' something (anything) is going to happen, would provide a licence to print money. Theories abound re. market 'timing' and its impossibility or at least being an endeavour not worth spending much time on. There are many ways (that work) with regard to market timing and they will either (a) reduce risk, (b) increase profits or (c) both of the above, depending on which method employed and how successfully it is employed.

2. Well to quote Mr Graham: in the short term the market is a voting machine, in the long a weighing machine. Even in the short term, the market is rational through the process of price discovery. That is what markets do. The market is always going to include the predominantly emotional and the predominantly rational. One will likely succeed, one will likely fail.

3. Volatility has many properties. That being (under certain circumstances) just one of them.

4. Companies raise capital (a cap raise being a single method) for all sorts of reasons. US based companies have been selling huge amounts of debt at high market valuations because debt is cheap (compared to equity) and using that to buy back stock (amongst many reasons).

So just using the examples provided by yourself and your reading, there is a disconnect from what you have read (possibly theoretical) and market reality, where the rubber meets the road. That is not really a criticism as we have all been there. The key is to separate interesting theory from theory that works in a practical sense and that which, while attractive to academics, is simply a waste of time and effort. It has no practical application or worse, is wrong and costs you money.

This is applicable to any number of (a) trading, (b) investing and (c) other books on the market purporting to be 'how to' books on market strategy etc.

Re. 'Antifragile': I don't do book summaries.

jog on
duc



If you don't do summaries while pointing out my understanding is flaw, I guess nothing much to learn from that.

But I still don't quite get what you mean by 'disconnect' cause you haven't mention what is the disconnect.

I didn't say you can't time the market because everyone said so. And sure knowing it is a license to print money. I'm just saying it is too hard because base rate tells me so, because stock market is a complex adaptive system, prediction changes the outcome (closed feedback loop), emergence behavior, and successful investing doesn't require one to know what's going to happen in the market. But that's just me.

I never mentioned anything about rationality/irrationality on market price. I apply it on how to understand people's buying habit and behaviour.

Sure volatility has many properties.

"there is a disconnect from what you have read (possibly theoretical) and market reality" - that sounds like there is one reality and you're closer to the reality than I'm.

All theories, or mental models are to a degree wrong. But having many of them do increase my calibration compared to having one model or none at all.

Your focus is on theory that have practical sense, otherwise it is waste of time or money. Well how do you know if something have 'practical' sense before you even learn it? And I prefer interesting theory. Interesting theory is a heuristic that there are dots I can connect. Interestingness drives curiosity. If the world is run on what's practical, Twitter won't exist, no one buys vacuum cleaner that cost a few Ks, pretty much most of science becomes impossible. That's my argument of too much rationality.

I don't think there is such thing as practical theories and unpractical theories. What's practical, like volatility, has many properties.


Re. Literature: I don't read literature
 
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1. If you don't do summaries while pointing out my understanding is flaw, I guess nothing much to learn from that.

2. But I still don't quite get what you mean by 'disconnect' cause you haven't mention what is the disconnect.

3. I didn't say you can't time the market because everyone said so. And sure knowing it is a license to print money. I'm just saying it is too hard because base rate tells me so, because stock market is a complex adaptive system, prediction changes the outcome (closed feedback loop), emergence behavior, and successful investing doesn't require one to know what's going to happen in the market. But that's just me.

4. I never mentioned anything about rationality/irrationality on market price. I apply it on how to understand people's buying habit and behaviour.

5. Sure volatility has many properties.

6. "there is a disconnect from what you have read (possibly theoretical) and market reality" - that sounds like there is one reality and you're closer to the reality than I'm.

7. All theories, or mental models are to a degree wrong. But having many of them do increase my calibration compared to having one model or none at all.

8. Your focus is on theory that have practical sense, otherwise it is waste of time or money. Well how do you know if something have 'practical' sense before you even learn it? And I prefer interesting theory. Interesting theory is a heuristic that there are dots I can connect. Interestingness drives curiosity. If the world is run on what's practical, Twitter won't exist, no one buys vacuum cleaner that cost a few Ks, pretty much most of science becomes impossible. That's my argument of too much rationality.

9. I don't think there is such thing as practical theories and unpractical theories. What's practical, like volatility, has many properties.


10. Re. Literature: I don't read literature

1. I used the examples that you provided to demonstrate some of the dichotomies between theory and practical application.

2. There are theories that are elegant in explaining a phenomenon. For example the 'Austrian's' theory of hyper-inflation. Yet, we have had two very recent examples (2008/2009 and beyond) and currently, in the US and most of the rest of the world, where the theory and (current) reality simply part ways. I suspect that important variables were not made explicit in the theory, which may account for its (seeming) failure atm. However that is beyond the scope of this post. That is what I mean by 'disconnect'. A second example of a flawed model, but one, that despite its flaws remains incredibly profitable is the Black/Scholes Option Pricing Model.

3. What you said was:

1. Currently everyone is interested to know if the next big fall is around the corner, I would say don't worry about it. (that is from an investor point of view, not trader).

You have now added further context and theory to support your argument or position:

(a) Too hard because base rate tells you so; and
(b) Stock market is a complex adaptive system; and
(c) Prediction changes the outcome (closed feedback loop); and
(d) Emergence behaviour; and
(e) Successful investing does not require that one knows what will happen in the market.

Excluding (a) as I'm the one not sure to what you are referring: (b), (c) and (d) all appear in various books written about the market, later, when I get back from work I'll find them. I'm guessing (e) is more your conclusion from your various excursions into the literature than your own position gleaned through experience, although I stand to be corrected on that point.

They are all elegant theories and I enjoyed reading about them myself. Possibly someone like Jim Simmons may actually be able to make practical use of them all. Most of the systems traders (implicitly) accept and utilise (c) in the design of their own trading codes. Those codes are designed to 'time the market'.

Your additional arguments are to prop up your initial argument (underlined) that 'timing the market' is too hard for most. If 'most' are those unwilling to put forward any effort, then I agree. Distinguishing between traders and investors in the way that you do, you have accepted the argument put forward that 'timing the market' is too hard, therefore 'time in the market' is the preferred (only) way forward, which is a widely adopted thesis of investment. But to state that, at your stage of development, (education) is highly arrogant and misinformed.

4. Which simply demonstrates your lack of understanding on the topic. The market price is a physical manifestation of human psychology in action.

5. We are agreed on that point.

6. That would seem to be the case currently.

7. You make a number of points in a single sentence. Always tricky:

(a) All theories are (to a degree) wrong; and
(b) Having more than 1 model improves your calibration compared to just having 1 or 0.

So: if they are all wrong to a point, how do you know which part is valuable and which part dross? If you cannot distinguish between value/dross, how does having many improve your odds of success?

What you are (probably) wanting to argue is: keep what is valuable from a model and discard the dross and keep adding to your central model value from additional models. I would agree. To do so requires:

(a) Critical reading of the literature; and
(b) Practical application to test the validity of ideas promulgated.

At the moment, your 'summaries' are uncritical regurgitations of the literature. It demonstrates the lack of critical reading and testing to separate the wheat from the chaff.

8. You are simply misquoting me. If you read at all, you should read critically (unless reading an entertainment novel) thereby positioning yourself to potentially benefit (financially or intellectually) from what you have read. In many instances, even with critical reading, you will need to test the propounded theory to appreciate its validity or failure. An example already provided (Black/Scholes). So I would never advocate not reading widely.

"The key is to separate interesting theory from theory that works in a practical sense and that which, while attractive to academics, is simply a waste of time and effort. It has no practical application or worse, is wrong and costs you money."

To separate theory that is correct (is applicable in reality) to dross (that which has no application) is a far cry from your interpretation of what I said. You focussed almost solely on the financial aspect of the sentence. That to a point is understandable as this is a financial forum and most discussion revolves around financial matters. Of course not all theory is applicable to financial matters, but is nonetheless correct. I would never include this as a waste of time or effort. It is however of little interest to a practical forum such as this, which has as its focus, profiting from financial markets.

"Your focus is on theory that have practical sense, otherwise it is waste of time or money. Well how do you know if something have 'practical' sense before you even learn it?"

Appreciate the difference?

9. Of course there is. Simply that with new theories there may be no way of practical usage currently or of proof/disproof (String Theory, Quantum Theory, etc).

10. Research papers, technical books (academic books) are all referred to as 'literature'. This is the context I used. But as regards classical literature, Shakespeare, etc, why ever not? Taleb, whose book you summarise reads classical literature widely, quoting endlessly from them.

jog on
duc




 
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1. I used the examples that you provided to demonstrate some of the dichotomies between theory and practical application.

2. There are theories that are elegant in explaining a phenomenon. For example the 'Austrian's' theory of hyper-inflation. Yet, we have had two very recent examples (2008/2009 and beyond) and currently, in the US and most of the rest of the world, where the theory and (current) reality simply part ways. I suspect that important variables were not made explicit in the theory, which may account for its (seeming) failure atm. However that is beyond the scope of this post. That is what I mean by 'disconnect'. A second example of a flawed model, but one, that despite its flaws remains incredibly profitable is the Black/Scholes Option Pricing Model.

3. What you said was:

1. Currently everyone is interested to know if the next big fall is around the corner, I would say don't worry about it. (that is from an investor point of view, not trader).

You have now added further context and theory to support your argument or position:

(a) Too hard because base rate tells you so; and
(b) Stock market is a complex adaptive system; and
(c) Prediction changes the outcome (closed feedback loop); and
(d) Emergence behaviour; and
(e) Successful investing does not require that one knows what will happen in the market.

Excluding (a) as I'm the one not sure to what you are referring: (b), (c) and (d) all appear in various books written about the market, later, when I get back from work I'll find them. I'm guessing (e) is more your conclusion from your various excursions into the literature than your own position gleaned through experience, although I stand to be corrected on that point.

They are all elegant theories and I enjoyed reading about them myself. Possibly someone like Jim Simmons may actually be able to make practical use of them all. Most of the systems traders (implicitly) accept and utilise (c) in the design of their own trading codes. Those codes are designed to 'time the market'.

Your additional arguments are to prop up your initial argument (underlined) that 'timing the market' is too hard for most. If 'most' are those unwilling to put forward any effort, then I agree. Distinguishing between traders and investors in the way that you do, you have accepted the argument put forward that 'timing the market' is too hard, therefore 'time in the market' is the preferred (only) way forward, which is a widely adopted thesis of investment. But to state that, at your stage of development, (education) is highly arrogant and misinformed.

4. Which simply demonstrates your lack of understanding on the topic. The market price is a physical manifestation of human psychology in action.

5. We are agreed on that point.

6. That would seem to be the case currently.

7. You make a number of points in a single sentence. Always tricky:

(a) All theories are (to a degree) wrong; and
(b) Having more than 1 model improves your calibration compared to just having 1 or 0.

So: if they are all wrong to a point, how do you know which part is valuable and which part dross? If you cannot distinguish between value/dross, how does having many improve your odds of success?

What you are (probably) wanting to argue is: keep what is valuable from a model and discard the dross and keep adding to your central model value from additional models. I would agree. To do so requires:

(a) Critical reading of the literature; and
(b) Practical application to test the validity of ideas promulgated.

At the moment, your 'summaries' are uncritical regurgitations of the literature. It demonstrates the lack of critical reading and testing to separate the wheat from the chaff.

8. You are simply misquoting me. If you read at all, you should read critically (unless reading an entertainment novel) thereby positioning yourself to potentially benefit (financially or intellectually) from what you have read. In many instances, even with critical reading, you will need to test the propounded theory to appreciate its validity or failure. An example already provided (Black/Scholes). So I would never advocate not reading widely.

"The key is to separate interesting theory from theory that works in a practical sense and that which, while attractive to academics, is simply a waste of time and effort. It has no practical application or worse, is wrong and costs you money."

To separate theory that is correct (is applicable in reality) to dross (that which has no application) is a far cry from your interpretation of what I said. You focussed almost solely on the financial aspect of the sentence. That to a point is understandable as this is a financial forum and most discussion revolves around financial matters. Of course not all theory is applicable to financial matters, but is nonetheless correct. I would never include this as a waste of time or effort. It is however of little interest to a practical forum such as this, which has as its focus, profiting from financial markets.

"Your focus is on theory that have practical sense, otherwise it is waste of time or money. Well how do you know if something have 'practical' sense before you even learn it?"

Appreciate the difference?

9. Of course there is. Simply that with new theories there may be no way of practical usage currently or of proof/disproof (String Theory, Quantum Theory, etc).

10. Research papers, technical books (academic books) are all referred to as 'literature'. This is the context I used. But as regards classical literature, Shakespeare, etc, why ever not? Taleb, whose book you summarise reads classical literature widely, quoting endlessly from them.

jog on
duc




Everything (theory) has a dichotomies, depending on the circumstance it is applied. It is about knowing their limitation. Which is why I never get the idea between practical and non-practical theory.

My additional argument is to provide my reasoning behind my initial argument. And that comes from both books and my own experience. And again 'timing' carries many meaning. But as far as my argument goes, does that mean no one can time the market? Of course not. That's what makes a market. My view of the world is a model, and it has its limitation. So does everyone's else model and perception.

I never said anything about discard the dross from a model. Knowing the assumption built into a model is a way to know its limitation, and knowing its limitation means you don't 'abuse' it. And when you have many models, it is like shining a torchlight on an object from different angles, you get a more accurate view of the object compared to when you shine it using a single torchlight.

I didn't misquote you because I didn't apply critical thinking, even if that is the case, it would be a small portion of it, but because you're writing is full of jargons and words that can be interpreted in a million ways. Because despite you phrasing 'critical' 5 times, I still have no clue what message you're trying to get across.
 
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Another thing, I considered these books as something that should read more than once because I find them important. Now, they're important because they make me think and allow me to connect with my own experience. And sure, by your understanding (which is a model too), I've a lack of critical thinking. But critical thinking is relative. Just like an athlete running at 10km/h would be a walk in the park, at 50% capacity of his full capacity, for a retiree that never run before, doing that speed would kill him.

So what your judgment on whether, or how much, am I applying critical thinking when I read these books are irrelevant, because that is based on your understanding of those books, not your understanding of my capacity to think and learn. I could be going at 0.1% capacity, or 99% capacity of what my brain neurons can take, you won't know. So your expectation of what critical thinking should look like and judge everyone using that ruler has no meaning. To me, the only thing that matters is overloading my way of thinking so that it improves incrementally. As to where that level is right now compared to the desired level of where you think it should be is not my problem.
 
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1. Everything (theory) has a dichotomies, depending on the circumstance it is applied. It is about knowing their limitation. Which is why I never get the idea between practical and non-practical theory.

2. My additional argument is to provide my reasoning behind my initial argument. And that comes from both books and my own experience.

3. And again 'timing' carries many meaning. But as far as my argument goes, does that mean no one can time the market? 3(a)Of course not. That's what makes a market.

4. My view of the world is a model, and it has its limitation. So does everyone's else model and perception.

5. I never said anything about discard the dross from a model.

6. Knowing the assumption built into a model is a way to know its limitation, and knowing its limitation means you don't 'abuse' it.

7. And when you have many models, it is like shining a torchlight on an object from different angles, you get a more accurate view of the object compared to when you shine it using a single torchlight.

8. I didn't misquote you because I didn't apply critical thinking, even if that is the case, it would be a small portion of it, but because you're writing is full of jargons and words that can be interpreted in a million ways. Because despite you phrasing 'critical' 5 times, I still have no clue what message you're trying to get across.

1. You do not seem to understand the meaning of the word 'dichotomy' (look it up). Therefore, a 'theory' cannot have dichotomies within itself. It must be consistent. Two separate, competing theories, can of course have dichotomies and often do. As to 'everything', well that is broad...addressing 'everything' is beyond the scope of this or any other post.

2. Accepted.

3. Well I agree 'timing' can be used in many different contexts: however, you were specific as to timing the (financial) markets, which is logical, as this forum is predominantly concerned with financial markets.

3(a) Which is contradicting your previous (advice) position. But that's fine. Not a major issue.

4. Would you distinguish 'twixt a 'model' and a 'philosophy'?

5. Correct. I did.

6. I can accept that. So taking your example:

"(b) Stock market is a complex adaptive system": what are the assumptions and limitations that inhibit market timing and how would you mitigate those limitations (assuming there are any): which there must be as many people (many on this forum) time the market successfully.

7. Or you end up massively confused. You seem to suggest that all models are complementary. I suggest that this is incorrect: not all models (theories) are complementary, some (many) are antagonistic. Thus, to have the synergy that you suggest is present, you would need a pretty comprehensive understanding of the models and their applications.

8. I am now sceptical that you even understand the word 'jargon'. However, I may be mistaken: where have I used jargon?

jog on
duc
 
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1. Another thing, I considered these books as something that should read more than once because I find them important. Now, they're important because they make me think and allow me to connect with my own experience.

2. And sure, by your understanding (which is a model too), I've a lack of critical thinking. But critical thinking is relative. Just like an athlete running at 10km/h would be a walk in the park, at 50% capacity of his full capacity, for a retiree that never run before, doing that speed would kill him.

3. So what your judgment on whether, or how much, am I applying critical thinking when I read these books are irrelevant,

4. because that is based on your understanding of those books, not your understanding of my capacity to think and learn. I could be going at 0.1% capacity, or 99% capacity of what my brain neurons can take, you won't know.

5. So your expectation of what critical thinking should look like and judge everyone using that ruler has no meaning.

6. To me, the only thing that matters is overloading my way of thinking so that it improves incrementally. As to where that level is right now compared to the desired level of where you think it should be is not my problem.

1. No argument from me. Agreed.

2. Critical thinking is relative. Agreed. However, it should be applied by all and improved upon. Which of course is a subjective opinion.

3. Mostly true, but not entirely. You posted your summary of the books that you have read as advice, on a public forum. That in of itself rather implies that you wish some interaction and as such, you open yourself to criticism of the quality of your understanding and/or advice. Don't cry about it when it is less than complimentary.

4. Well you have demonstrated the level of your current learning. I'm sure you will progress. As I previously stated, we all have been there ourselves. There are not that many polymaths in the world.

5. I actually said 'critical reading'. They are related, but critical thinking is more advanced than critical reading. Thinking is (very) abstract. It is largely epitomised in philosophy, which ironically, Taleb aspires to.

6. You're all in a huff simply because you have materially misunderstood my criticism(s).

jog on
duc

 
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Market is a CAS, and of course that statement doesn't make it 'impossible' to time it. But just because it is a degree closer to possible than impossible, should I do it? And I am writing from my own experience and understanding of the market. Does it make it right? Does it make it wrong? And if you can time the market, good on you. But would that make me less right because I said it is almost impossible simply because I am lazy to do it due to opportunity cost where I have other things that gives me a lower risk and higher rewards?

Never said anything about all theories/models are complementary, don't misquote me. I only said all theories have their limitations and those limitations can be known by having a good understanding on the assumption made by the theory or when two theories conflict each other.
 
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1. Market is a CAS, and of course that statement doesn't make it 'impossible' to time it.

2. But just because it is a degree closer to possible than impossible, should I do it?

3. And I am writing from my own experience and understanding of the market. Does it make it right? Does it make it wrong?

4. And if you can time the market, good on you. But would that make me less right because I said it is almost impossible simply because I am lazy to do it due to opportunity cost where I have other things that gives me a lower risk and higher rewards?

5. Never said anything about all theories/models are complementary, don't misquote me. I only said all theories have their limitations and those limitations can be known by having a good understanding on the assumption made by the theory or when two theories conflict each other.

1. Now if the market is a Complex Adaptive System (CAS) then because emergent properties are part of the CAS theory, this 'fact' would enhance market timing. This forum is an example of an emergent property and there is ample evidence that the collective through piecemeal contributions have advanced the whole, which is of course composed of multiple individuals. Mr Peter's and Mr Skate's threads are great examples of this.

2. Not for me to say.

3. Not an ethical question, so irrelevant.

4. Always go with the highest return for the lowest risk as your first choice. This of course is an example of Mr Taleb's barbell.

5. I'm not misquoting you at all. That is the logical conclusion of your premise:

"Knowing the assumption built into a model is a way to know its limitation, and knowing its limitation means you don't 'abuse' it. And when you have many models, it is like shining a torchlight on an object from different angles, you get a more accurate view of the object compared to when you shine it using a single torchlight."

Your statement above implies that all the models employed are complementary. My response:

"Or you end up massively confused. You seem to suggest that all models are complementary. I suggest that this is incorrect: not all models (theories) are complementary, some (many) are antagonistic. Thus, to have the synergy that you suggest is present, you would need a pretty comprehensive understanding of the models and their applications."

No misquotes in there old chap. Rather I am suggesting (implying) that at your current level of understanding, you would end up more confused than enlightened. I refer to your CAS example above as evidence of an inability to apply the knowledge contained in the theory, which is not to imply that my example is the only possible use of CAS.

jog on
duc
 
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