Nassim Nicholas Taleb, the former trader and well known author of The Black Swan and Fooled By Randomness, has put together a new book of aphorisms, entitled The Bed of Procrustes.  The Procrustes of Greek mythology was a cruel fellow who stretched or shortened people to make them fit his inflexible bed. Mr. Taleb’s new book addresses the modern day ways in which “we humans, facing limits of knowledge, and things we do not observe, the unseen and the unknown, resolve the tension by squeezing life and the world into crisp commoditized ideas, reductive categories, specific vocabularies, and prepackaged narratives, which, on the occasion, has explosive consequences.”  In other words, we live under self-imposed delusions.  Here are a few of the aphorisms that expose our delusionary thinking, many of which can be applied to trading.  But, in order to understand their application, we must first step out of our delusional state.

The stock market, in brief: participants are calmly waiting in line to be slaughtered while thinking it is for a Broadway show.
You are rich if and only if money you refuse tastes better than money you accept.
The best test of whether someone is extremely stupid (or extremely wise) is whether financial and political news makes sense to him.
You can be certain that the head of a corporation has a lot to worry about when he announces publicly that “there is nothing to worry about.”
The main difference between government bailouts and smoking is that in some rare cases the statement “this is my last cigarette” holds true. (more…)