Book Review: The Black Swan by Nassim Nicholas Taleb
May 23, 2008
For Nassim Nicholas Taleb, a black swan is a social or economic or cultural event that has three characteristics:
1. It is unpredictable
2. It has a massive impact
3. It is explained as being predictable after it surprises everybody
- Taleb appears to be a polymath
- He has garnered lots of good reviews
- He is more style than substance
Taleb's logic is this: If a great negative event, like 9/11, could have been predicted it would have been prevented. But the facts contradict Taleb's logic. Pearl Harbor was predicted. So, actually, was 9/11. So were all the stock market crashes he claims were unpredictable. Each of these events was foreseen by people using a combination of insight and common sense to draw conclusions about the future. But these people were ignored.
So the question is not why can't we predict "surprising major events" but why do we ignore warnings when they are given?Taleb says, "What you don't know is far more relevant than what you do know," but this is just seductive poppycock. He cites two examples: September 11 and the "secret recipe to making a killing in the restaurant business." Of the former he says that had we known we would have prevented it; of the latter, "if it were known…then someone next door would have already come up with the idea and it would have become generic. The next killing in the restaurant industry needs to be an idea that is not easily conceived of by the current population of restaurateurs."
Again, reality refutes Taleb's theory: There are, in fact, secrets to running successful restaurants. People who run successful restaurant chains know them. How do you explain the fact that these chain restaurants are successful time and time again in all sorts of different markets? And, in fact, there are different secrets. There is one secret to run a successful Houston's and another to run a successful Applebee's and another to run a successful Don Schula's Steak House. There are universal secrets and particular ones. Each restaurateur knows them. That is why they continue to be successful.This is not true of the person who opens one restaurant and succeeds. He may or may not understand the secrets he needs to know. So many people who own a single, successful restaurant fail when they try a second. Those people were lucky in their first success. But they don't disprove knowledge or the predictability of knowledge. They merely show what we already know: that sometimes people succeed out of sheer luck.
Redeeming Pleasures: Notwithstanding its critical weakness (that its theme is just plain wrong), the book does have some mitigating pleasures:- It is full of ideas - from every corner of the world of knowledge – and is thus stimulating and challenging, if you want to try to keep up with it.
- He tells the story of Umberto Eco's 30,000-book library. When visitors saw it they reacted one of two ways. The great majority said, "Wow, Professor. What a library you have. How many of these books have you read?" A tiny minority got "the point that a library is not an ego-boosting tool but a research tool" and that "unread books are far more valuable than read books."
- It is full of itself - the author is a snob but he likes being a snob and that is sort of infectious.
- In mentioning Eco, he says, "Eco belongs to that small class of scholars who are encyclopedic, insightful and nondull."
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posted by M. Masterson @ 9:25 AM,
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Thoughts and Conclusions about Wealth
May 19, 2008
Historically speaking there are three ways wealth was created: plundering, taxation and commerce. The first two involve force. Only the third operates freely.
In ETR Monday, I wrote about some of the wealth-building habits billionaires share. Habits anyone can develop. Here is some interesting background on five of the U.S.'s wealthiest:
1. John D. Rockefeller (1839 - 1937) was the wealthiest American who ever lived. He started off in the grocery business in Cleveland, sold his operation and went into the emerging industry of oil. Along with his partner, Henry Flagler, he started Standard Oil. His great success came from developing his business monopolistically by controlling the railroads, production and refinement as well as exploration. In today's dollars, Rockefeller was worth around $318 billion.
2. Andrew Carnegie (1835 -1919) began as a bobbin boy in a textile mill in Pennsylvania. He became rich by working his way up the iron and steel business in order to build railroads. He understood very early that the industrial revolution was going to change everything in America. He was quick to recognize that steel was a better product than iron and invested in steel. He put his steel company to work building railroads and then as the railroad expansion was coming to an end he started promoting and selling steel beams for city skyscrapers. In today's dollars, Carnegie was worth just shy of $300 billion.
3. Cornelius Vanderbilt (1794 -1877) built steamboats to ferry people and goods along rivers and the coastline of northeastern America. He was also a railroad builder and at one time owned the route between New York and Chicago. Like Rockefeller and Astor, Vanderbilt was skillful at controlling all the major aspects that affected his core business. He didn't want to be dependent on suppliers and so developed his own supply companies to control price and supply. His net worth in today's dollars would be nearly $170 billion.
4. John Jacob Astor (1763 -1848) was America's first millionaire. By today's standards he was worth $115 billion. He made his money as a trader - first of fur and then of liquor, opium, and tea - from the end of the American Revolution until the middle of the nineteenth century. His skill: he was a great investor in businesses, diversifying his interests and getting in and out of businesses when economics mandated.
5. Warren Buffett (1930), CEO of Berkshire Hathaway, made his money as a stock market investor. Just this year - with a net worth of about $62 billion - he surpassed Bill Gates as the richest person in the world. According to Forbes, Buffett filed his first tax return as a 13-year-old. He has since adhered to value investing principles, sticking with companies that have good fundamentals. That means he thinks in the long term and doesn't get caught up in the "hot" trend. In 1955, Buffett took over Berkshire Hathaway - originally a textile firm - and has built it into a major holding company with investments in insurance, food, jewelry, utilities, and more.
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posted by M. Masterson @ 9:30 AM,
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Impressions of Holland
May 9, 2008
The first time I visited Amsterdam was in 1977, just after I had spent two years in Chad as a Peace Corps volunteer. I hadn't been there since. What impressions I had from my first trip were small: clean, orderly streets; handsome people; good food and the astonishing sight of ladies in underwear in the red light district.
Nothing I experienced on my most recent trip (just last month) contradicted those impressions: Amsterdam is one of the cleanest and most orderly in the world. The food, though not gourmet, is amenable to US tastes. The red light district is just as amazing as it ever was and a refutation to those who believe that prostitution demoralizes culture.
Other impressions:
- The security system in the Amsterdam Airport is better than any in the USA. The screening goes on at the gates. There are one or two stations at each gate. This reduces waiting considerably and eliminates any chance of missing a flight because of security delays.
- The security personnel are intelligent, dutiful and courteous. They view themselves as professionals. The US should fire all the hoodlums and misfits that populate our security checkpoints and replace them with workers from Holland.
- Although the Dutch are famous for their chocolate you don't find much chocolate on the dessert menus.
- The Dutch people are almost universally handsome but rarely beautiful. They are taller than North Americans. I have no idea why.
- English is spoken as a second language in Amsterdam and throughout most of Holland. Dutch is a difficult language to grasp quickly. The sounds are different. The spelling is unusual. The vocabulary is unfamiliar
- The Euro is the currency of Holland. That means that almost everything is comparatively expensive for US citizens today. What would cost $5 in America (a hamburger and coke, for example) would cost five Euros in Holland. Trouble is that five Euros equals nearly eight bucks.
- If you convert all Euro-based prices into dollars you will not be able to buy anything. The pragmatic strategy is to pretend that the dollar has equal value (the way it used to) and spend accordingly.
- Like everything else in Amsterdam the canals are relatively unpolluted. Traveling around in this city of canals is challenging at first - just as it is in Florence. But once you understand the layout you can get around quite easily - almost as easily as you can in Rome.
- Using public restrooms in Holland is not the horrifying, health-threatening experience that it is in the US. Rest rooms are almost all regularly staffed by competent workers. Toilets were all very clean.
- Walking down the city streets at night, you never feel in any danger. People are quieter and better behaved than they are in the US or England. The only noisy people we encountered were from England or America.
- The Dutch economy seems stronger than the US economy. I saw no bums, no beggars and no one who seemed poor. A cab driver told me that the "regular" people don't live as well as the people of Amsterdam. A bartender told me there was a growing problem with immigrants from North Africa who are a drain on the economy. But I saw none of that. The local papers report that the Dutch economy is declining and that real estate prices are dropping. Talking to merchants it seemed clear that most tourism-related businesses (including taxies, hotels and most retail stores) are suffering because Americans are spending less. But generally speaking, Holland seemed better off than the US.
- Amsterdam is a city of young people. The average age of age of the restaurant goers we saw was about 25. In New York it's more like 35. In Delray Beach it is older than that.
- The history of Holland is informative. They became a major economic power in the second half of the 16th century. By the middle of the 17th century they were the world's biggest bankers and most successful international traders. The Dutch government was decentralized during this Golden era. Individual states were clustered in a federation through representatives but had a good deal of local power. Wars were fought mostly through private trading companies and mostly to secure economic interests in India and the New World. Eventually Spain and England came to dominate world trade, but the Dutch settled comfortably into a secondary but important position as merchant bankers and stockholders of international companies.
- Although the Dutch covet personal economic, social, and personal freedom (which is why prostitution and drugs are legal) their culture is fundamentally conservative.
- You can smoke pot or hash in coffee shops throughout Amsterdam. Despite the availability and legality of drug use, drug use seems relatively modest and there is no appearance of a drug problem in the city. You don't see addicts lying in door portals or in alleyways. You aren't accosted by them on street corners. If there are drug addicts in Holland, they aren't noticeable and don't appear to be bothering people. As with prostitution, Amsterdam proves that we have nothing to fear from making these vices (if they are vices) legal.
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posted by M. Masterson @ 4:41 PM,
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