Nassim Taleb is the author of The Black Swan, the book everyone references as it relates to the pandemic. This is what put his work on my radar, including his latest New York Times Bestseller, Antifragile (Things That Gain from Disorder), which forms the basis of this post. Antifragile was the best book I read in 2021.
Interestingly, Taleb himself has stated that COVID-19 was not a Black Swan event precisely because it could have been predicted.
True “Black Swans”, he says, “are large-scale unpredictable and irregular events of massive consequence – unpredicted by a certain observer, and such unpredictor is generally called the “turkey” when he is both surprised and harmed by these events.”
This is why COVID was not a Black Swan, plenty of epidemiologists have been predicting novel coronavirus outbreaks for years, and viruses themselves are not rare in human biology to begin with.
Antifragility, a word made up by Taleb, is the antidote to Black Swans. Antifragile systems benefit from disorder, volatility, and chaos. They aren’t just immune to volatility, they actually benefit from it.
He holds up the example of Mother Nature as an incredibly antifragile system. It has lasted billions of years, and will continue to last, even if humans, planets, and everything in between ends. This is because it adapts, weeds out defects ruthlessly, and improves upon itself with zero systemic oversight. Natural selection is a powerful force. It needs no intervention.
There is no need to “teach birds how to fly”, which is one of Taleb’s best metaphors to illustrate unnecessary intervention.
By comparison, large, interconnected and centralized institutions are fragile. The housing collapse of 2006-2008 is an example. Loose credit standards, incentives to bundle and rebundle risky loans and banks considered “too big to fail” continue to kick the can down the road to a point where a chain reaction occurred that almost took down the entire global financial industry.
This behavior brought on the greatest recession we’ve seen since the 1930s and caused damage to every corner of the global economy. Bailing out the big banks that allowed this to happen will likely mean that even now we are continuing to kick the can even further down the road.
Perhaps fintech, blockchain and cryptocurrencies have something to say about our current financial situation. There are many elements of antifragility baked into crypto and web3 due to its decentralized nature.
I’m also trying to incorporate elements of antifragility into my own life. Maybe you can do something similar.
The first way I am ensuring I am antifragile and therefore not vulnerable to a Black Swan event is related to the stock market. To do this, I need to be able to withstand any negative and unexpected event (or even better, to capitalize on it). This is a fancy way of saving I’m holding some cash back on the sidelines.
This helps me sleep at night. It helps me remain indifferent to finance gurus crying that the sky is falling after every 5% correction. Could I be foregoing big gains in one of the longest running bull markets ever? Absolutely. I’m comfortable with that.
I’d like to gain from the volatility and disorder inherent to stocks by being able to put money to work when prices go on sale. Keeping more cash on hand than I need for an emergency allows me take advantage of the crashes that occur from time to time. If one doesn’t occur anytime soon, that’s fine too because I’m not sitting on the sidelines entirely either.
I’ve also slowly made a move away from concentrated stock positions to more ETFs and Index Funds. Due to their diversification, any single shock or negative event shouldn’t be enough to disrupt my entire portfolio. Even if it does, it is more likely to bounce back than a single stock. Antifragile.
Another way I am attempting to build antifragility into my personal life is through this blog. The benefits of writing online have been laid out far more eloquently than I could in David Perrel’s “Write of Passage” so I will refer you to his thoughts on the topic.
But in addition to all those benefits, writing has recently allowed me to diversify my employment. A single stream of income from a corporation makes an individual fragile. The business may go under, the industry may be disrupted, or you could be laid off. To be clear, I don’t make any ad revenue from this site. I make about $2 for every 10,000 views. And I have only had 10,000 views. Sad.
But in addition to working on cars in my brother’s shop, which I did on weekends all throughout my twenties, I have found a freelance writing gig that I can do on nights and weekends, too.
By having a digital business card (this website), I was able to convince a would-be employer that I can string together 1,000 cohesive words with SEO tactics. This extra income goes straight to my “f*** you money” if I ever want to quit my job. Even though I like my job, I like having this insurance policy.
The final example of antifragility I am tinkering with is the idea of asymmetric upside. Basically, you need to look for areas you have a finite downside and an unlimited upside. This is why a small percentage of my wealth is now allocated to a single pharmaceutical penny stock, Bitcoin, Ethereum, and Solana. It won’t blow me up to lose 5% of my money. It may hurt, but I won’t die.
These three cryptocurrencies and one risky pharma stock represent unlimited upside and the only downside is that of my initial investment. Using a barbell strategy, I have the other 95% of my investments in REITs, retirement accounts, and blue chip stocks. Antifragile.
Investments can also benefit from Black Swans in the same way they could be harmed by them. For example, tons of work-from-home stocks benefited from COVID. Homeowners benefited from COVID. Hell, even a company as boring as Clorox benefited from COVID.
Ensuring that no one pillar of my financial life can take down the others has been a slow and awkward journey, but I’ll continue to trial and error my way to being able to gain from disorder, instead of getting wrecked by it.
Until next time, fellow birds.
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I love the description of antifragility. It’s like having plans B – Z, or a few extra support legs on the bridge. My analogies aren’t as good which is why I read your posts. 🤣 I appreciate the concrete examples outside of stocks, like side gigs that are flexible or at-will hours.
It’s such a cool concept and the author does a great job explaining it. I think plans B-Z is well-put because it means you have options. Having options is one of his main points actually. He calls it having the “option but not the obligation” which I love. Thanks for reading the post Jennifer!
Antifragility is another way of saying diversification is king. I agree that diversifying your income and investments is essential, as it creates an insurance policy. However, I disagree that crypto acts as a diversifier. Nevertheless, everyone has their own views and I am glad that you have found a method that works for you! Thanks for the thoughtful post!
Thanks, Olaf! I definitely think diversification is best achieved by holding multiple asset classes, be they REITs, stocks, cash, or crypto.
This is a great post. While we have not read Antifragile, we have read The Black Swan and Skin in the Game, both of which allude to the importance of building apparatuses that can withstand any shock to the system. Thank you for sharing this.
Thanks for your thoughtful comment! I really want to read both of his other books that you mentioned.
You’re welcome, and you should totally check out the other two. They are interesting and insightful