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Back from the Beach

And “Fooled by Randomness” gave me a lot to think about. Enough that I wrote two pages on my site of monthly articles, so take a look for the full discussion.
I’ll share with you a quiz he relates, from a book titled “Randomness” by Deborah Bennett;
A test of a disease presents a rate of 5% false positives. The disease strikes 1/1000 of the population. People are tested at random, regardless of whether they are suspected of having the disease. A patient’s test is positive. What is the probability of the patient having the disease?
Of course the answer is about 2%, since we know that of 1000 people there will be one with the disease, and nearly 50 false positives. One in fifty is 2%. Here, Taleb missed his chance to offer some further math suggesting how much accuracy such a test would need to offer. In this case even .1% false positive would make for a 50/50 confidence for our random patient. The original author states that one in five doctors got this question correct. An interesting look at something we often taken for granted.

I also read “The Smartest Investment Book You’ll Ever Read”, and found it a bit light. It was a brief book which make the case for index funds, providing quite a bit of data as to why professional managers don’t beat the market. Maybe because I agree 100% with that sentiment, and didn’t really learn anything new, I was a bit disappointed. I’d be more inclined to suggest books from my suggested reading list, starting with “A Random Walk Down wall Street”, by Burton Malkiel.
Back to the beach this weekend. Happy Labor Day!
JOE

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