The Psychology of Betting Big and Losing It All
awealthofcommonsense.com
awealthofcommonsense.com
It would be better if they unpacked this sentence, but it stops there:
There’s a difference between gambling, trading and building your own business but there are also similarities.
I also recall Norm MacDonald saying that some regulation against online poker "saved him", because he was playing all night and couldn't sleep. So he was clearly a gambling addict, and it doesn't help to draw bad analogies. Comedy is risky, but it's also a constructive pursuit. RIP.
This seems like an extreme example of that, going from $100M to $10K and then committing suicide. It's a story that repeats itself throughout history.
Taleb's argument is that those people were never skilled -- they were lucky. It is possible to "win" for 20 years mostly based on luck.
Also he would probably argue (harshly) that at least this person accepted their consequences. These days the person who loses $100M based on an unsound trading strategy can socialize their losses.
you might be thinking of Victor Niederhoffer.
Nobody is as happy as the person who is both very impulsive and very lucky.
I mean it's not some new discovery.
It was obvious for the attentive observer that Sinatra had lived a happier and more interesting life than Rockefeller.
Similarly Hugh Hefner has lived a more fulfilling life than Charlie Munger.
You gotta live in the moment and be impulsive to be happy. But to sustain those levels of impulsiveness you need luck to go your way to somehow always manage to avoid the negative consequences of impulsivity.
Whether it's some Mafia boss looking for a revenge after having been diluted from the record publishing partnership or some disgrunted Playboy bunny going on a media blitz aiming to gain a huge amount of money...both men needed a huge amount of luck to avoid being taken down.
How could you possibly know that?
Sinatra had severe problems with not being happy and was frequently suicidal for example:
https://www.pbs.org/newshour/nation/8-things-you-didnt-know-...
I'm sure a lot of people incorrectly perceived, at a great distance, that Robin Williams was consistently an exceptionally happy person also (based on his outward jovial disposition and the common reaction to his death by the public).
Sinatra and Hefner simply believed in their own mind that they were special and acted on it, whereas people like Munger , they ruminate for hours on end thinking about whether CPI would come out at 2.7% or 2.5% while already sitting on 5 billion dollars.
Also constantly pricing the odds of every move and generally thinking about stuff too much instead of acting and let the chips fall where they may.
They could easily be living in giant mansions in Monaco, feasting on gourmet food cooked by personal private chefs every day, on superyachts in the Seychelles, or any other lavish-wealth scenario you'd care to name.
But they don't. They work in a modest office in Omaha, and eat McDonald's and drink Coke for lunch.
Why would they do that, when they have so many other options? Because they like it. Their value system is different than yours. They enjoy their relatively modest middle class lifestyles, believe it or not.
If they didn't, if they weren't happy, they could make a few phone calls and be on a private jet to the other side of the planet within an hour. But they don't do that, because they value that less than what they're doing now. They're happy ruminating on minute differences in CPI figures while eating an Egg McMuffin for breakfast.
I don't think it's because of that. I think it's because they have internalized the concept of global competition being a zero-sum game and can't let go of it because 100B is still nothing compared to the total size of the pie.
Sinatra instead didn't internalize anything, did deals with Mafia families, acted recklessly and yet he managed to shut down Las Vegas lights in 1999 when he passed and will be remembered long after Buffett is forgotten.
Acting impulsively + luck beats rumination every day. It's not even a contest.
Anyone who has paid any attention to Buffett or Munger will tell you there is no indication they do anything like "ruminate". They appear to think a lot and analyze things, but it's almost all forward looking. And they seem to be very happy. Munger even had a small child die of cancer and said something to the effect of "at some point you just have to dust yourself off and keep moving forward".
When to try a little bold move because nobody dared and it's not that risky. VS jumping from the 13th floor.
Also with habits, you know what is failing, what is your insurance/mat, and how to size your bet.
Traders often use a 1% rule, but they know if they won regularly and they have a hunch on an asset, they can go 5% maybe 10%. A newbie won't have that subtle gradient.
People who feel like something is missing usually take impulsive actions and ever-increasing risks.
Chasing one thrill after another because otherwise you don't feel happy, or anything at all.
That's unhappiness, something close to it or even worse.
Living a meaningful, content and exciting life doesn't require impulsive, risky behaviors. It's a shame our culture isn't very honest about this fact.
That's an interesting choice of words - "honest".
What is "our culture"?
Is it the social relations that occur between people? The books, the plays, the literature? The songs, the music? The customs that date back to the founding of the nation? The politness? The assumptions? The courtesies? The fashions? The engineering achievements? The political framework?
Or is it what we see on screens?
The problem with what we see on screens, even when it is any or all of the above, is that screens are powered by advertising.
> You gotta live in the moment and be impulsive to be happy.
I get the impression he equates happiness with being thrilled.
Being impulsive and in the moment is just the opposite end of rumination, hence is the safest place from unhappiness.
Meaning it's also the place to find happiness.
Being impulsive with money is another thing altogether, and a long way from being zen happy in a present moment.
Wow! Suddenly, missing out on some stock market gains (but not losing anything in the long run) doesn't seem so bad.
The number of people pushing large amounts of their money into totally new crypto, just so they can be in on the "ground floor" and not miss another Bitcoin is just staggering.
I've had a lucky path to learn a bit more about it than many, training and competing in high-risk sports - downhill ski racing, rock climbing, and sportscar racing. Among those groups, it is almost axiomatic to understand and chat about "smart crazy" vs. "dumb crazy" - everyone knew immediately what we meant, but no one really defined it.
The best definition I heard was from an auto racing coach with a military background (another high-risk venture). He put it as:
The difference between using knowledge, technology, and skill to manage risk vs getting away with something.
We can use knowledge, tech, & skill to have entire careers in situations that will kill us in an instant, e.g., high-rise construction, steelmaking (after safety became a goal), deep sea diving, flying, etc..
Of course, there are many stunts that will kill you but not every time -and people get away with them all the time, until they don't, e.g., drunk driving, gambling. These are all essentially forms of Russian Roulette.
And yes, sometimes knowledge, tech, & skill aren't enough, and you must just go ahead and yell "never tell me the odds".
Knowing this early has definitely helped in life, but I'm not sure it has made me a good investor. I'm seeing a pattern where I had a great investment thesis, but didn't follow through as fully as I should - invested too little, sold too soon, etc.. Of course, easy to see in hindsight, but perhaps also too much awareness of how much the markets are too much Russian Roulette and too little skill. That said, I've also avoided many large potential losses.
Perhaps the best advice I saw about this was tacked to the door of a rock & ice climbing school:
Good judgement comes from experience. Experience comes from bad judgement.
(The key is that you need to ensure that your bad judgement is never quite bad enough to take you out of the game)
Good luck to us all.
While there's definitely an element to that, I think you are more onto the right answer. From my experience (having tried a range but certainly not all), and those of many I know, there is no drug like adrenaline - not even close.
I read about a drug-rehab program that showed extremely high success rates, and it was based around teaching former addicts rock climbing. Having experienced both the confidence that comes from climbing, and the adrenaline, this was no surprise. What also was, sadly, not surprising was that it seemed to go away, I'm guessing because it couldn't get consistent funding for what most people considered too high a risk (as if lower success 'normal' programs posed no risk...).