Monthly Archives: December 2011

Malcom Gladwell (author of Outliers, Blink, and The Tipping Point) on Nassim Taleb, Victor Niederhoffer, and George Soros (three great investors and thinkers):

“He didn’t talk much, so I observed him,” Taleb recalls. “I spent seven hours watching him trade. Everyone else in his office was in his twenties, and he was in his fifties, and he had the most energy of them all. Then, after the markets closed, he went out to hit a thousand backhands on the tennis court.” Taleb is Greek-Orthodox Lebanese and his first language was French, and in his pronunciation the name Niederhoffer comes out as the slightly more exotic Nieder hoffer. “Here was a guy living in a mansion with thousands of books, and that was my dream as a child,” Taleb went on. “He was part chevalier, part scholar. My respect for him was intense.” There was just one problem, however, and it is the key to understanding the strange path that Nassim Taleb has chosen, and the position he now holds as Wall Street’s principal dissident. Despite his envy and admiration, he did not want to be Victor Niederhoffer — not then, not now, and not even for a moment in between. For when he looked around him, at the books and the tennis court and the folk art on the walls — when he contemplated the countless millions that Niederhoffer had made over the years — he could not escape the thought that it might all have been the result of sheer, dumb luck.

Taleb knew how heretical that thought was. Wall Street was dedicated to the principle that when it came to playing the markets there was such a thing as expertise, that skill and insight mattered in investing just as skill and insight mattered in surgery and golf and flying fighter jets. Those who had the foresight to grasp the role that software would play in the modern world bought Microsoft in 1985, and made a fortune. Those who understood the psychology of investment bubbles sold their tech stocks at the end of 1999 and escaped the Nasdaq crash. Warren Buffett was known as the “sage of Omaha” because it seemed incontrovertible that if you started with nothing and ended up with billions then you had to be smarter than everyone else: Buffett was successful for a reason. Yet how could you know, Taleb wondered, whether that reason was responsible for someone’s success, or simply a rationalization invented after the fact? George Soros seemed to be successful for a reason, too. He used to say that he followed something called “the theory of reflexivity.” But then, later, Soros wrote that in most situations his theory “is so feeble that it can be safely ignored.” An old trading partner of Taleb’s, a man named Jean-Manuel Rozan, once spent an entire afternoon arguing about the stock market with Soros. Soros was vehemently bearish, and he had an elaborate theory to explain why, which turned out to be entirely wrong. The stock market boomed. Two years later, Rozan ran into Soros at a tennis tournament. “Do you remember our conversation?” Rozan asked. “I recall it very well,” Soros replied. “I changed my mind, and made an absolute fortune.” He changed his mind! The truest thing about Soros seemed to be what his son Robert had once said:

My father will sit down and give you theories to explain why he does this or that. But I remember seeing it as a kid and thinking, Jesus Christ, at least half of this is bullshit. I mean, you know the reason he changes his position on the market or whatever is because his back starts killing him. It has nothing to do with reason. He literally goes into a spasm, and it’s this early warning sign.

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