It is not a secret that I’m a big fan of Nassim Taleb’s work. I named the stock newsletter that I edit after his global bestseller. The key to value investing 2.0 is in his Incerto. Expect this review to be slightly biased in that sense.
As much as I love his work for making me understand reality better, he can be annoying in his writing. If you are going to be reading Taleb don’t expect he’ll make it easy on you as most business / popular science writers do. His books are never six steps to the solution you need. Instead reading Taleb reminds me of my dad trying to explain the fundamentals behind some math problem the day before the test when all I wanted was to understand how to get the trick done.
Taleb claims his new book Skin in the Game is about four topics in one:
a) uncertainty and the reliability of knowledge (both practical and scientific, assuming there is a difference), or in less polite words bull***t detection,
b) symmetry in human affairs, that is, fairness, justice, responsibility, and reciprocity,
c) information sharing in transactions, and
d) rationality in complex systems and in the real world. That these four cannot be disentangled is something that is obvious when one has…skin in the game.*
Who would benefit from this book
I doubt many will read it but policymakers, corporate executives, investors, scientists, students could all benefit by taking in the lessons in Skin In The Game. Munger has said
“Never, ever, think about something else when you should be thinking about the power of incentives.”
— Charlie Munger (Trades, Portfolio)
Skin In The Game teaches us to always look for the skin in the game. Look for it in your investments but also look for ways to put skin in the game when you are designing or managing systems.
In case you are giving economic views: Don’t tell me what you “think,” just tell me what’s in your portfolio.
Taleb shows humans understand the concept at an elementary level and have practiced it through the ages but sometimes in modern, sophisticated society we do not consciously acknowledge the importance of this element and either eliminate or dilute it from some system. Consequently that system immediately starts to become less reliable.
It was already known he has a dim view on forecasting which is one of the philosophical connections I see between Graham, Klarman and other deep value investors and Taleb.
forecasting, especially when done with “science,” is often the last refuge of the charlatan, and has been so since the beginning of times.
Taleb also believes there is a major difference between the owner-operator and the agent-operator:
Companies beyond the entrepreneur stage start to rot. One of the reasons corporations have the mortality of cancer patients is the assignment of time-defined duties. Once you change assignment—or, better, company—you can now say about the deep Bob Rubin–style risks that emerge: “It’s not my problem anymore.” The same happens when you sell out, so remember that: The skills at making things diverge from those at selling things. Arrogant Will Do Products or companies that bear the owner’s name convey very valuable messages. They are shouting that they have something to lose. Eponymy indicates both a commitment to the company and a confidence in the product. A friend of mine, Paul Wilmott, is often called an egomaniac for having his name on a mathematical finance technical journal (Wil–mott), which at the time of writing is undoubtedly the best. “Egomaniac” is good for the product. But if you can’t get “egomaniac,” “arrogant” will do.
This idea is not new. Horizon Kinetics even created an ETF based on the concept (The Horizon Kinetics Wealth Index) that owner/operators outperform while Jeff Bezos at Amazon is well known for his Day 1 philosophy (see embedded clip below). Taleb put it in a philosophical perspective that complements his other work in the Incerto. Together it makes for a perspective that’s grounded in practice/history/reasoning as opposed to misinterpreted or doctored data.
A perspective that can complement or at least reinforce any (deep) value investment strategy while potentially applications can be found everywhere in life.
Who will hate this book?
I’m fairly sure a lot of academics are going to hate this book and surely Steven Pinker isn’t going to like it. For some reasons known to him Taleb chose to give scientists, especially in the social domain, a lot of grief. Pinker seems to embody what he dislikes about the social sciences and faces the brunt of his scorn. I don’t enjoy Taleb’s dismissals/attacks of the authorities he choses to confront but perhaps the book would be worse if he didn’t. Taleb is deliberately putting his teaching into practice. For example there’s a part where he shows how cursing (a way of expressing yourself that’s not universally accepted) can improve communication:
My friend Rory Sutherland (the same Rory) explained that some more intelligent corporate representatives had the strategy of cursing while talking to journalists in a way to signal that they were conveying the truth, not reciting some company mantra. *6 Universal suffrage did not change the story by much: until recently, the pool of elected people in so-called democracies was limited to a club of upper class people who cared much, much less about the press. But with more social mobility, ironically, more people could access the pool of politicians—and lose their jobs. And progressively, as with corporations, you start gathering people with minimal courage—and selected because they don’t have courage, as with a regular corporation.
It’s not just Pinker though. Taleb is at times quite dismissive of a lot of science and scientism. Although, you may think he got it wrong or it’s not THAT bad, it would be a shame to ignore him. It is very hard to acknowledge someone’s got a point while he or she is offending you. If you can do it all the power to you. Read Taleb’s latest work and heed its contents. Charlie Munger (Trades, Portfolio) considered himself in the top cohort of people when segmenting based on respect for incentives. At 94 years of age he thinks he underestimated their effect for his entire life.
