Fooled by randomness?

I've ever seen a student who is delusional. When he gets right, he'll claim that he's smart and clever. Especially if he didn't put in the effort compared to those 'muggers' who studied all day and night but scored worse than him. When he gets it wrong, he'll blame circumstances (oh he's sick, the paper is too hard, he's studying for another subject etc). What I think is that he didn't study at all, and it's just luck that got him good results, or luck that got him bad results. Basically, it's not consistent.


There are people like that when they participate in the stock market too. Except that they research deep into the company and bought it, and when the bullish market brings everything up, they mistook it for skill. These are the people whom you see screaming x% returns in y days. But when the market turns down, will they blame bad luck instead? People should read Nassim Nicholas Taleb's Fooled by Randomness. It's a good thesis on how we are fooled by seemingly random events, taking those good events as your own achievements, label it as 'skill' while discarding those failures and call it 'bad luck'.

I think it's useless to think whether your method of participating in the stock market is successful if you didn't test it in at least one cycle of bull/bear. Even then, I can't be sure if the method is successful. It's always work in progress and earning in progress. What the market provides, it can just as easily take it away. Don't ever think that because you reaped so much from the stock market, you're a smart market participant. The market might be starting the next round of fighting while you're still celebrating your victory from the previous round.


It's not easy behaving with the carefulness and humbleness of a newbie when you're no longer one. That's the lesson we all have to learn, if we want to be a long term survivor.