The Bed of Procrustes – Nassim Taleb

Market Meditations | March 26, 2021

Feels like time we ticked off another Nassim Taleb book. Today’s focus: The Bed of Procrustes.

? We don’t usually begin our Trading Education sections with an explanation of what the title of the book means but in this situation, it is warranted.

Procrustes, in Greek mythology, was the cruel owner of an estate in Attica who would abduct travellers and either stretch them or cut off their heads to ensure they fitted his bed perfectly ? The entire book is about a Procrustean bed of sorts:

The idea that faced with the imperfection of the unknown and the unobserved, we humans tend to back-fit the world into reductive categories.

✅ The book consists of a series of aphorisms: a concise or memorable expression of a general truth or principle. Here are a few most relevant to trading and investing ?

“If something (say a stock price) looks slightly out of line, it is out of line. If it looks way out of line, you are wrong in your method of evaluation.” 

If we are diligent, we spend a lot of time coming up with our trading strategies ⏰ From guides to creating a Trading Journal to Risk:Reward articles, we have a range of resources to help you in doing this. However, the amount of time you spent on your trading strategy does not guarantee its success or suitability ❌ If the market reaction is way out of line to your expectation, rather than blaming the market, it is important to be logical and revise your strategy. For the market will never apologise and the market will never return any losses. 

“The three most harmful addictions are heroin, carbohydrates, and a monthly salary.”

We’ve covered a range of career journey books such as the 4 Hour Work Week and the Millionaire Fast-Lane. What they all have in common, is the idea that a monthly salary turns your attention so much toward money that you lose sight of that which money achieves: freedom, mobility and liberation. With a 9-5 job and monthly salary, you will be retired by the time you may truly enjoy that which money achieves. Turn your attention to other income generating activities such as trading, investing and creating your own business ✅

“Saying someone is good at making profits, but not good at managing risk, is like saying someone is a great surgeon, except for cases when the patients die.” 

Minimising losses, minimising losses and more minimising losses. Great traders are able to manage their risk and set stop losses such that their downside or maximum capital at risk is quantifiable ? And so, they know that they will never risk enough to be completely wiped out. Cut your losers short and let your winners runFailure to do this is one of the main reasons people can’t become successful traders. We have a full guide on setting stop losses.