Nassim Taleb has coined the phrase black swan which has become a term used in culture to describe negative unforeseen situations arising with dire impact. One recent one was COVID-19, where the effects led to the whole world being in some form of shutdown for nearly 3 years, and completely disrupting lives, jobs, businesses, and the way the world was lived. On a more micro level, black swans can happen to individuals. We live life ignoring the negatives and yet, these unforeseen negatives come around so often now on a macro or micro level it seems too difficult and foolish to just live in the day to day with no thinking of the future or the greater picture.

Prologue

-just because you see all white swans does not mean all swans are white. It only takes one black swan to ruin an entire theory or generalization

-logical fallacy: assuming the opposite is true

-black swan: an outlier tail risk, largely unforeseen, and causing extreme impact

-black swan events actually explain the majority of life, and are now increasing due to humanities selfishness and ignorance of things happening outside their realm

-by reading the news too much, it actually increases our ignorance as we get caught up in the small details of life, instead of focusing on big picture by thinking

-nothing goes according to plan

-the more unique and unexpected ideas will make the most money, if successful

-do not predict black swans; place yourself in position to likely benefit from positive black swans

-recursive; life is a feedback loop, which leads to cause and effect, and eventually, a winner takes all scenario

-In our society heroes die bad lives and then their lives live on as martyrs (Martin Luther King, Nelson Mandela, Jesus)

-everyone gets a kick of serotonin from recognition, even those who say they don’t. Therefore, silent heroes get punished. You either live a famous hero or become a villain.

-people reward reactive behaviour, not proactive behaviour (incorrectly)

-don’t consider someone in normal times, do so when times are tough to get a sense of their character. However, education now, including on social life, is focused on normal circumstances. Thus, you have the situations where people who seem amazing in normal circumstances but bad in other schemes (psychopaths), that end up negatively surprising most people. That is a GIF- Great Intellectual Fraud

-black swans occur from the difference between what you think you know and what you actually know

-explain ideas through a story rather than as a straight up idea

Part 1 – Umberto Eco’s Antilibrary; how we seek validation

–Books that remain unread often hold greater value than those that have been read.

Chapter one – apprenticeship does an empirical skeptic

-read books backwards, or, what I do and know what the key ideas are about and then start at the beginning

-triplet of opacity:

A-false illusion of understanding

B-retrospective expertise (hindsight is 20/20, but looking forward no one has a clue)

C-overvaluation of factual information

-Nobody knows what’s going on; people do things based on hope (and then get disappointed and nihilistic). No one panics if there is a plan, even if the plan is horrible

-History does not crawl or move linearly, it jumps with random periods of huge change; human nature cannot accept unpredictability or uncertainty, opposite of what one should do, as high uncertainty should be welcomed. The more intelligent the person, the better the after the fact failed explanation.

-also a reader when young

-people become encyclopedias about news and small talk, and yet to no avail

-smart people always think they are smarter in everything, not just what they are good at. So, smart people are way more likely to be arrogant and make huge mistakes in life

-people now don’t think for themselves and engage in group think

-even business news for the most part is nonsense

-when we are kids, we don’t know we don’t know, when we’re adults we pretend we know when we still don’t know

–Steer clear of the companionship of “achievers” and individuals in suits who neglect the habit of reading books.

Chapter 2 – Yevgenia’s Black Swan

-avoid marrying people who argue too much, such as philosophers. Yevgenia Krasnova divorced three men (fictional character)

-her book was a positive black swan

Chapter 3 – the speculator and the prostitute

-most advice people have given are bad and don’t stick, only a few do

-for people that give unwanted advice, tell them of Ivan the Terrible who put monks to death for unwanted advice

-do work where the wealth obtained can scale without additional work (passive income, stock market investing)

-views business men and financial economists as not human

-also, evolution is scalable. The best DNA wins and reproduces itself. The bad ones, such as low agreeable career-oriented women, will not win

-in winner take all industries, most people are left with nothing. Avoid winner take all industries, unless you are the winner

-in the Information Age, the rich stay on top with ability to store information and wealth

-communities are full of imitators to avoid solitude

-Mediocristan; so much diversification and quantity that change in a small facet makes no difference. E.g. adding one tall person to the earth and increasing average height by a little. Social factors are mediocristan

-Extremistan; one addition of someone makes a huge impact. Wealth is extremistan

-in mediocristan, social factors, you only need a sample of say a few hundred to have empirical evidence and truths of the entire population. I.e. you only need to have gotten to know a few hundred people early on in life to have enough sample size to offer the opportunity to get wisdom about the secrets of people

-in extremistan, secrets of nature, one event can cause an entire sample or idea to be turned on its head. Thus, secrets of nature require continuous destruction of old ideas, continuous learning, lack of assumptions

-Extremistan; financial markets, commodity prices, inflation rates. More things in life fit Extremistan than mediocristan. Only simple, direct people related things fit mediocristan. Mediocristan: Routine, predictable, tyranny of the collective or majority, obvious

Extremistan: accidental, singular, unseen, unpredictable

-Mediocristan is what we are taught in school

-most events in modern life now fits Extremistan even though most people are mediocre and believes it is mediocristan

Chapter Four – one thousand and one days; how not to be a sucker

-those in a position of power or arrogance take themselves too seriously

-money came easy to him at age 25, and stopped giving money away easy when calculating wealth

-people got pulled into a false sense of security from appearance of mutual friendliness or tolerance

-the same hand that feeds you can be the one to wring your neck

-some experiences can offer not only no value, but negative value

-there isn’t necessarily unconditional benefit from past experiences. Everything works until it doesn’t

-if past history was all there was, the most successful people would be librarians

-those who are overconfident most likely to occur a life crippling mistake or mistakes

-positive black swans take time to show the effect, while negative black swans happen swiftly

-by doubting everything, you attain a level of serenity

-people confuse mediocristan for Extremistan and vice versa often in life

-many people think we live in and everything is mediocristan, when most things are Extremistan. Human nature is not designed for black swans, unforeseen things

Chapter 5 – confirmation bias

-fallacy; if most terrorists are Muslims, that does not mean most Muslims are terrorists

-incorrect scientific analogies have led women to take care of babies with bottle feeding, rather than direct breast feeding. It’s worse for both sides for using bottle

-do not randomly remove teeth or tonsils or fibers

-avoid confirmation bias as it leads to close-mindedness, while in a state of being wrong and unable to change the situation due to trying to look for positives that confirms one’s incorrect disastrous position. This leads to repeating the same mistakes in life, turning into a fool

-negative instances, not verification, gets you closer to the truth

-building generalized rules from observation is not a good sign

-we know what is wrong with a lot more confidence than what is right

-true self-confidence is finding where we would be wrong rather than where we would be right (confirmation bias). That leads to genuine improvement

–Once your mind adopts a specific worldview, you’re inclined to focus on instances that confirm your perspective.

That means, past the age of 30 everyone gets closed-minded

-in our modern world of Extremistan, we actually need to withhold judgment for longer than before

Chapter 6 – the narrative fallacy

-we like to make stories about cause and effect, when I’m reality we don’t know or understand, even after the fact. It’s in our nature to make judgments and explanations right away when seeing some facts, yet the ancient skeptics tells us to go against our nature and withhold judgement. It is in the nature of system 1 to judge right away. It requires energy to withhold judgment and one will exhaust oneself. Therefore, figure out what is right and make correct judgments

-too much dopamine leads to decreased brain ability, susceptible to fads, frauds, scams

-we engage in narrative fallacy because information is costly to obtain, store or retrieve

-we simply remember, reduce randomness, otherwise we cannot learn if we don’t look for patterns. This causes black swans to be ignored even more

-many psychological disorders come from a loss or lack of control

-we even remember things subjectively; what was very emotional, easy to remember, distinct, pattern based, or easy, or recent. We even remember things falsely. Thus, people can see the same set of facts and come up with different or even opposite conclusions, which is why stock markets exist, because of disagreement of assessment

-do not avoid thinking about things, instead think about them and figure them out. Bad advice from people who say to ignore important things or “just forget about it”

-Say I don’t know to things that are complicated

-the sensational and the black swans. People remember stuff that has occurred and overestimate, they don’t consider what hasn’t occurred. E.g. after 9/11, increased terror of terrorism even though the odds are very low

-people underestimate negative black swans and overestimate positive black swans

-people incur emotional responses faster than they do cognitive. This means, one is going to “know they love someone” emotionally first then logically

-prefer experience over history, experiments over storytelling, clinical knowledge over theories

-Chapter 7; living in the antechamber of hope

-how to avoid watercoolers (like our company biweekly social) select brother-in-law, avoidance of hope, virtues of slow motion

-Peer cruelty; where one gets subtly compared and put down against a brother-in-law who is far more successful than you are, including your wife who goes quiet in disgust at marrying a loser, sulking

-how to avoid marrying women who constantly are trying to trade up?

-peer cruelty when under constant failure and nothing to show for it, requires courage to keep going

-our animal instinct system 1 wants immediate, steady rewards proportional to our effort. This causes people to give up easily when coming up empty handed

-what is relevant is often boring and forgotten

-linear progression is the exception, not the norm

-to rectify human behaviour, favour the process over the result

-most people end up waiting their life for a big day that they hope for that never happens (I.e. winning the lottery)

-interestingly, the people who make the sacrifices do not get the rewards. E.g. the publisher makes more than the writer, the venture capitalist more than the entrepreneur. Those who sacrifice for society are sacrificed by society; they help make society move forward (old maids who run companies, dying alone and single)

–Mother Nature intended for us to find pleasure in a continuous stream of small, frequent rewards.

-be careful what you wish for; many people live life based solely on hope, denying their current existence in one day hoping for a sudden change in fortune (hoping to get married, hoping to be exalted, hoping to get rich). Do not live in the emotions of hope and instead live in life

-if you engage in a black swan dependent activity, it’s better to do so in a group than alone (that’s why most people buy lottery tickets as a group)

-in the summer of 1982, US banks collectively lost more money than they had earned in their entire prior history

-people bank entirely on a black swan or don’t even consider it, black and white, nothing in between

-remove any kind of stressors from your life. They do not strengthen you; they just tire you out and take away your energy from doing the things you want to do

-it’s much easier to convince people if you are self-confident in a polite and friendly manner

-if you do what you do in an unrelenting, calm and confident manner, the haters around you eventually give up and may even believe you

Chapter 8 – unfailing luck; the problem of silent evidence

-silent evidence, survivorship bias; we only hear from the winners, and not the lost losers. Success stories alone do not tell the whole picture

-there is the illusion of skill in many professions

-many things around us are lurking in silence

-the silent consequences are more dangerous than the loud ones and thus more important

-humans overly optimistic bent actually leads to more problems than solutions

-look at all angles, as people only present the loud positive side, and hide the quiet losing side

-don’t try and offer explanations for things you don’t know

Chapter Nine – Lucid fallacy

-prefer the unconventional fat Tony, who believes the next coin toss is way lower odds of hitting heads if 99 straight heads, who thinks outside the box, vs the in the box meticulous type

-the in the box types (usually nerds), straight A’s, don’t seem to get anywhere in life

-people who think within a box will underestimate black swans. Fat Tony is more cultured than Dr. John, and smarter in everything else except academics

-After school, you do not know the odds of anything and aren’t given a map. You have to figure it out, which is why in the box types end up being employees their whole life

-know what you know and know what you don’t know; Ludic fallacy, assuming everything fixed and, in the box

-people now calculate too much and think too little

-casinos focus so much on theft and so little on other risks

-those who did well in school fall for fallacies

-because of our system 1 thinking, we actually are naturally shallow and superficial, we just don’t know it. It takes energy to go to system 2 to think deeper.

-spot the difference between empirical (experimental evidence) and sensational

-be wise in what matters, be foolish in what doesn’t

-it is fools gold to try and predict the future, yet people do it all the time

Chapter 10 – the scandal of prediction

-epistemic arrogance; knowledge arrogance. We think we know more than we do, knowledge leads to arrogance, confusion, conceit

-the ones higher up in life become more arrogant – managers, business leaders, MBA’s

-timing the market is thus difficult

-pure information is actually bad for knowledge. Having too much floating around in your head leads to none of it being processed. Avoid information overload. And wasting time looking busy.

-charm can open doors for people in the short-term

-listening to news thus is bad as too much information with no real use

-concentrating it at once is better

-the best way to avoid overconfidence is to analyze your previous recorded track record

-what matters is not how often we are right, but how big our mistakes are (avoid life changing mistakes)

-people are overconfident and cannot make a mistake because of their lack of self-esteem and need to protect it; they make an excuse and externalize failure; “if I had one more thing, I would have been right”

-overspecialized people knew no more than the average informed person; some overspecialized “experts” didn’t know their own domain at all, such as financial experts

-we are more nomadic than we think, more nomadic than community

-Occams Razor; after a certain point, the simplest method works the best, as it often offers the same output as complex methods

-ignorance is not an excuse

-everyone underestimated others because they only think of themselves

-in mediocristan, there is a finite end, such as lifespan. The closer you are, the less time left. In extremistan, the closer you are with delays, the farther you are.

-people from tunnel vision have bad forecasts

Chapter 11 – how to look for bird guano

-have plans, but be ready to change them in moments notice

-accidental discoveries are the best ones. Intentional discoveries do not happen as well or often. Position yourself to be in those situations

-luck favours the prepared. Best way to get maximum exposure is to keep researching and exploring, increasing opportunities

-if we expect something in the future, it will likely happen in the present

-the further you predict the future, the more difficult

-governments and large corporations are too bureaucratic and take too long to get things done

-often, visionaries have great ideas that may take society a long time to recognize and accept. That’s why we need to cross the chasm. Past the early 2nd tier adopters for things to work, or to at least get in that category

-we overweight experts

Chapter 12 – Epistemocracy, a dream

-we are predisposed to like arrogant people, not humble people

–When contemplating tomorrow, we often envision it as another rendition of yesterday.

Chapter 13

-do not give unsolicited advice- instead, charge people for advice

-being hungry, being foolish where the mistakes will not permanently leave lasting damage is good

-America encourages failures whereas Europe and Asia do not like failure (met with stigma and embarrassment)

-have either very safe or very risky investments. A portfolio of all average companies doesn’t do the trick. Barbell, inverted histogram strategy

-Put ourselves to be in a position for positive black swans, and not negative surprises

-fortune favours the bold

-collect free nonlottery tickets. Work hard not in grunt work (employee work) but where payoffs increase exponentially. Going to parties and meeting someone could change your life. It’s not what you know but who you know. Focus on asymmetrical consequences

Part 3 –The Gray Swans of Extremistan

Chapter 14 – from mediocrity to extremist, and back

-the world is unfair. In extremistan, our world, no one is safe and anyone can end up on the bottom

-with the internet, it offers anyone success in a niche or at anywhere in a distribution, the ultimate equalizer

-globalization leads to interlocking and greater black swans; we will have less crisis but more severe

-the greater the social inequality in a society, the greater the disparity. Winners even live longer. With Christianity 1:1 man woman (vs Islam one man: 4 women), this leads to more social stability as fewer single men to torment a revolution. However, in our generation now, with many men and women single, society is more unstable and with a revolution suppressed, it will lead to constant instability, which is what is happening right now

Chapter 15 – the fraud of the bell curve

-the average man is a monster

-the bell curve is for mediocristan, a fairy tale not relevant to society

-extremistan is winner take all, which is our society

-80/20 rule extended is 50/1 and 97/20

-standard deviations and volatility are nonsense

-gray swans are modeled rare occurrences

-In the last 50 years, 10 days have yielded half the returns

-do life by developing intuition from practise; going from observations to books. Most people go from books to observations and are thus lacking street smarts

Chapter 18 – uncertainty of the phony

-preparing for uncertainty is lunacy as that would be implying you know the uncertainty. However, you cannot plan for unknown unknowns, which is what most professions do (fortune telling, economists). We cannot even predict if a marriage will last. Worry about dollars instead of pennies.

-go from problems to books (Dalio’s upward coil of success)

-professionals are even more likely to believe other professionals; the arrogance of the intellect

-“safe” blue chip stocks offer hidden risk, more speculative and small companies offer known risk

-be wise in what matters, be foolish in what doesn’t

-quitting a high-paying position, if this your decision, often has a better payoff than the utility of the money involved

-you are in control of your destiny

Disclaimer

This is not Financial Advice. This article is meant only for educational and perhaps entertainment purposes.