a very very early call on the housing bubble.


nassim taleb may seem like a lunatic when you watch him ranting and raving, especially when many of the points he makes have been made by some of the financial economists that he so derides. but he did popularize the theory of black swans and i love his memorable picture of one of the fallacies of induction. a chicken assumes reasonably that it is going to be fed every day of the year and if it plots its utility, it thinks things are going to go smoothly. problem of induction. you do need an inductive hypothesis to create knowledge. but relying on such a hypothesis places limits on your "knowledge"

bear markets are not quite as dramatic. but you can understand why it is difficult to call one. let me even call attention to something closer to home.

as a hypothetical example, if a company or a country grows at 8% a year for 30 years, one would be reasonable confident it is a good country or company, and you should buy stock in it. however, anytime you see something wrong, and you point it out, it is always tempting to be rebutted by the argument : hey look, we've been growing for 8% for the past 30 years. we have a great track record, don't worry. then start worrying. it is alright to buy into growth, but don't put all your eggs in that basket. there is nothing more dangerous than buying into the apex of a curve. this is my argument against CAGR (Compound Annual Growth Rate) type arguments for picking industries which I was subjected to a lot in the summer.

for some things, this can be remedied by taking an even longer time series. for big things such as how well a country will do, i think it is best to be humble and probably rely on our intuition on its vision for the future and more qualitative considerations. (which are unfortunately derailed by our psychology).

so, this "knowledge based economy" is important. it is a vision of the future which relies less on accumulating factors.

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