Today I am finishing Fooled by Randomness
by Nassim Taleb, and I must tell you it is a pretty interesting book. Although his wandering and complicated style is over my head, he brings up some very interesting issues that are ignored in just about every other book I have read about trading.
It is particularly interesting for us because it explains many of the technical results that we have achieved during the development of Automated Trading systems. Nassim explains why backtesting is a poor approach at best, and downright fraudulent at worst. But this is really a subset of an idea that has been percolating inside my mind, and he has been able to explain it quite well. It is the idea of the religion of science.
What is the religion of science?
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Automated Trading, Great Books, Investing, Online Investing AI, Success
Automated Trading, backtesting, beliefs, black swan, children, Investing, mindset, Money, nassim, Success
As I mentioned in a previous post, finding good financial advice is a big challenge. And, it’s probably just as hard to find good trading advice. Most people trade based on tips passed on from their friends or that they find on the internet. This is probably the worst kind of trading advice you can find.
But even better trading advice, such as analysis of technical indicators is only marginally useful. This is because trading advice can only be used effectively under the right conditions. It takes more skills than the ability to read technical indicators to become a successful trader.
Imagine a finely tuned Porsche. It’s all tuned up, and running well. The tires are set to the right air pressure, there is gas in the tank, and the brakes lines have been bled. It’s even washed and shining in the morning sunlight. What happens if you take someone who has never driven a car and put them behind the wheel?
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Internet, Investing, Money, Success
finacial future, financial success, Investing, markets, mindset, Money, risk management, trading
Most people who start out investing are interested in learning about specific strategies. They learn about the details of rates of return, and the differences between mutual funds and buying individual stocks. They find out about the requirements for getting a mortgage, and how to deal with the issues related to rental property.
There is one small challenge to this approach. Before we can succeed with any of these individual strategies we have to have the right mindset. It’s like planning a long road trip before making sure our car will make it. Before we get in our car and start driving, we need to make sure that there is enough oil and coolant, and that the brakes are OK. We wouldn’t want to get stuck in the middle of the desert because there wasn’t enough coolant.
Yet this is exactly what most people do when they start investing. Without having the right mindset, we just start out by buying stocks or mutual funds. The problem is that our mindset is the ultimate source of all of our decisions. We will not be able to successfully make investment decisions until we set our brains up for financial success.
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Great Books, Investing, Money, Success
abundance, blogs, Investing, mindset, Money, newspapers, poverty, real estate, wealth
This is the last post in the series. See the bottom of the post for the other nine posts.
90% of Financial Success Is Psychology
Have you ever looked at the list of the world’s wealthiest people? It seems that each person found a different way to get rich. Some people, like Bill Gates, did it by building a software business. Others did it through investing. Warren Buffett is a great example. Still others did it in different ways.
So that begs an interesting question. If there’s so many different ways of getting rich, what do they all have in common? The answer is, a certain way of thinking.
90% of financial success is determined by how you think. The remaining 10% is the specific strategies people use to get rich. Most people love to focus on strategy. They talk about who to hire, how to do marketing, or which properties are best to buy. But all of these strategies will only work if they are built on a certain mindset. And this mindset is the psychology of financial success.
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Investing, Money, Success
Bill Gates, education, financial industry, mindset, psychology, secrets, Warren Buffett, wealth
is one of my favorite financial books of all time. It's an allegory about a guy who has a terrible job, and how he overcomes challenges to achieve his dreams.
