Nassim Taleb – Just Because An Investor Makes Money Doesn’t Mean They’re Good

Absence of critical thinking expressed in absence of revision of their stance with “stop losses”. Middlebrow traders do not like selling when it is “even better value”. They did not consider that perhaps their method of determining value is wrong, rather than the market failing to accommodate their measure of value. They may be right, but, perhaps, some allowance for the possibility of their methods being flawed was not made. For all his flaws, we will see that Soros seems rarely to examine an unfavorable outcome without testing his own framework of analysis.

Denial. When the losses occurred there was no clear acceptance of what had happened. The price on the screen lost its reality in favor of some abstract “value”. In classic denial mode, the usual “this is only the result of liquidation, distress sales” was proffered. They continuously ignored the message from reality.

How could traders who made every single mistake in the book become so successful? Because of a simple principle concerning randomness.

This is one manifestation of the survivorship bias. We tend to think that traders make money because they are good. Perhaps we have turned the causality on its head; we consider them good just because they make money. One can make money in the financial markets totally out of randomness.

- More Here