Book · How to decide

Fooled by Randomness

Name: Fooled by Randomness
Author: Nassim Nicholas Taleb

Nassim Nicholas Taleb · 2001

On the human inability to distinguish skill from luck, written by a trader with no patience for people who cannot.

Why it is here

The argument is that in domains with high randomness, outcomes tell you very little about process, and that our instinct to construct explanations for successful people is close to worthless. Angel investing is such a domain, and this book is the sharpest available statement of the problem.

It should be read directly alongside our angel legends section, which is a catalogue of extraordinary outcomes and says so. Every one of those stories has an explanatory narrative attached to it, and this book is the corrective for how much weight to give it.

The tone is combative and a lot of people find it insufferable. That is a fair reaction and it does not make the argument wrong.

Read it if

You have ever read about a successful investor and tried to work out what they did right.

Skip it if

You cannot tolerate a confrontational authorial voice — the substance is genuinely good and the delivery is an acquired taste.

Pair it withThe Power LawSebastian MallabyA financial historian on how venture capital became what it is, and why the distribution of outcomes makes it behave unlike any other asset class.

What it explains

Terms this covers

DilutionThe reduction in your percentage ownership when a company issues new shares — a mathematical certainty in venture that reduces your slice while, in a good outcome, increasing its value.