Teaser for the Book ANTIFRAGILE
(Things That Gain From Disorder)
by Nassim Nicholas TALEB, published in 2012, publisher Random House (US), Penguin (UK)
A very interesting read indeed. Nassim Nicholas TALEB is an illustrious figure who has had a renowned and varied career: Trader, Writer, Academic Researcher.
TALEB does NOT mince his words. He shares an amazing insight into the Financial World, a world he navigated for decades and clearly has very little positive to say about.
His book is NOT a book about finance. It’s an interesting take on all aspects of life. It is all-encompassing: it is about
- the way in which we lead our lives / our own childhood experience
- Our children and how we bring them up
- financial/governmental institutions
- the financial system(s)
- the corporate world, companies, big and small
- the medical world
- objects / things: physical structures (bridges, buildings, cars, planes, boats, nuclear reactors….)
Let’s Begin With The TRIAD
He considers that all of the above can be placed into one of the three main categories or the TRIAD
FRAGILE / ROBUST / ANTIFRAGILE
They can react differently to outside STRESSORS:
- Randomness (Black Swan, Mother Nature’s surprises)
- Unexpected events
- Outside stressors (heat, emotional stress, challenges in life, economic downturn, climate change, war, famine….)
Many things in this world are FRAGILE: unable to resist any kind of shock in life, whether it be
- Natural Disaster
Fragile to the extent that an individual (child or adult), an organisation, a company, a government, a country, a building, a vehicle, an aircraft, a nuclear reactor may be negatively affected, destroyed or left to waste in the face of disorder.
Examples of FRAGILITY
- A child who is never allowed to make mistakes, play freely, fall, hurt himself/herself and learn from life’s experience will NOT be well-prepared for the future and may become fragile in the face of adversity.
- The Fukushima Nuclear Reactor is a great example of fragility. Built close to the Ring of Fire on the Pacific Ocean, where earthquakes are extremely frequent, as are Tsunamis, it was unfortunately NOT designed for the series of events that took place on March 11 2011. You might say it was an accident waiting to happen.
If we have been well-prepared in life (emotionally, socially), if a thing/object has been well-designed and well-built, if a business or an organisation is well-run, then it may at least turn out to be ROBUST. Robust and able to resist shocks and therefore survive randomness and unexpected events.
Example of ROBUSTNESS
- In Greek mythology, you might say that Prometheus was robust (or at least his liver). Zeus forbade Prometheus to share the gift of fire with mortal Man. Prometheus had a weak spot for Man and in the end, betrayed Zeus, stole the fire and gave it to Man. Prometheus provoked the Wrath of Zeus and was chained to a rock. Every day, Prometheus had his liver ripped out and eaten by an eagle. The liver grew back, only to be ripped out again by the eagle the following day.
And so on. Rinse and Repeat. Now that is taking Ground Hog day to an extreme, but you have to admit both Prometheus and his liver were rather robust.
In certain rare cases, in certain situations, a few of the above may actually grow stronger when an outside STRESSOR or disorder is encountered.
Examples of ANTIFRAGILITY
- The Vikings thrived amongst disorder. Convinced that they would go to Valhalla if they died in battle, they were a formidable force for most of their foes and tended to “gain from disorder”. One might argue that they were the personification of Antifragile.
- A company director who has NO SKIN IN THE GAME might be well-rewarded, whether the outcome of his management approach is positive or negative for the company
A Few Concepts….
Nassim Nicholas TALEB uses his first-hand experience and deep knowledge of the Financial World, his common sense and also philosophical thinking and applies these to different situations in our day-to-day life and our society:
- Skin In The Game All Directors should have their own money invested in the company. Otherwise, they would NOT suffer sufficiently, the down-side of a bad decision. People who make forecasts should have something to “lose” if their forecast is incorrect.
- Via Negativa describing God in words or in terms of what God is NOT. Taleb adapts this to modern life by removing elements that pose a threat to his health, his serenity, his lifestyle: stay active and healthy, avoid stress (the 9-5 ?)
- Barbell Strategy an investment strategy in fixed-income or stocks where half of the investment is in short-term instruments (lower yield/lower risk-reward) and the other half in longer term instruments (generally higher yield/higher risk-reward), with generally nothing between the two.
- Green Lumber Problem This covers the notion of “Relevant vs. Irrelevant Knowledge”: on many occasions, people attribute their success to the wrong “knowledge”. They may not actually realise they are “ignorant to the full facts”. Paradoxically and in spite of this, the outcome of a situation is favourable to them
- The Lindy Effect An object / a technology / a book / a theory / a family business that has been around for a “long time” is likely to have a prolonged life. On the other hand, in recent times, we have seen many cases of new technology/trends – although innovative and useful – being cast aside and overtaken by a new trend or competitor which is NOT necessarily better
Negative Effects Of Outside Intervention
TALEB then goes on to state examples where outside intervention only makes things worse and turns potential antifragility or robustness into fragility:
- An over-protective parent that assists a child in all aspects of his/her life. The child is never allowed to taste life on his/her own terms and make mistakes and learn from life. The child is likely to grow up fragile and experience great difficulty in the face of adversity.
- Instead of allowing Mother Nature to deal with disease, bacteria or certain conditions, we intervene with our own health far too much, to the extent that over-use of anti-biotics (or even hand-sanitizers) weakens our immune system.
- The current financial system has encouraged individuals, companies, banks, central banks and governments to take on excessive amounts of debt over recent decades. In 2007-2008, governments and central banks decided that certain banks, institutions, companies were too BIG to fail and were bailed out with tax-payers money. Many such entities have become zombie companies ever since, unable to even pay off the interest on their debts. Some such companies are even being bailed out today in the current crisis of 2020. It begs the questions:
Are the current financial institutions fully in control of the situation?
Has the current financial and monetary system finally run its course?
Whether or not you agree with Nassim Nicholas TALEB’s often brutal judgements of modern-day society, it should at least stir your curiosity. This book is full of “nuggets” regardless of your vision on life.