The
resilient resists shocks and stays the same; the antifragile gets better.
They
thrive and grow when exposed to volatility, randomness, disorder, and
stressors. We get stronger under harm, up to a point. The
reverse is fragile. When you are fragile, you depend on things following the
exact planned course, with as little deviation as possible - for
deviations are more harmful than help.
A
systematic removal of uncertainty and randomness in complex systems, trying to
make matters highly predictable in their smallest details, for the sake of
comfort and convenience, are more harmful than help. We become fragile.
It
is said that the best horses lose when they compete with slower ones, and win
against better rivals. The absence of a stressor, absence of a challenge,
degrades the best of the best.
In
a system, the sacrifices of some units - fragile units - are often necessary
for the well-being of other units or the whole.
Restaurants are fragile; they compete with each other, but the collective of local restaurants is antifragile for that very reason. Had each restaurant been immortal, the overall business would be either stagnant or weak.
Small forest fires periodically cleanse the system of the most flammable material, so this does not have the opportunity to accumulate.
Another example. Take two identical twin brothers,
John and George. John has been employed for 25 years as a clerk in the
personnel department of a large bank, dealing with the relocation of
employees around the globe.
John has a perfectly
predictable income. Every month, 3082 GBP is deposited in his local
account. Life is good - until the banking crisis. People laid off at the
age of 50, struggle to recover.
George on the other hand is a taxi driver. His income is
extremely variable. Some days are "good", some are worse, but
year after year, he averages about the same as his brother. This is the
central illusion of life: that randomness is risky, that it is a bad
thing. George has some
volatility in his income but is rather robust to a minor Black Swan. Small variations make him adapt and change
continuously by learning from the environment and being, sort of,
continuously under pressure to be fit.
The barbell strategy
The first step toward antifragility consists in first decreasing downside, rather
than increasing upside. Clip your downside, protect yourself from ruin, and let
the upside and natural antifragility work by itself.
Said with other words; make sure you are barbelled. It's the idea of playing it safe in some areas and taking a lot of risks in others. Extreme risk aversion on one side, and extreme risk loving on the other.
Antifragility is the combination of aggressiveness plus paranoia. If you put 90% of your funds in boring cash and 10% in very risky, maximally risky, securities, you cannot possibly lose more than 10%, while you are exposed to massive upside.
If something is fragile, its risk of breaking makes anything you do to improve it or make it "efficient" not important unless you first reduce that risk of breaking.
Optionality
Corporations are in love with the idea of the strategic plan, but does it work? Coca-Cola began as a pharmaceutical product. Nokia began as a paper mill. We are managed by small (or large) accidental changes, more accidental than we admit.
In
an uncertain and unpredictable future we need optionality. If you have
optionality, you are less dependent on intelligence, knowledge, insight, and
these complicated things. All
you need is the wisdom to not do unintelligent
things to hurt yourself and recognize favorable outcomes when they occur. Keep the good and ditch the bad. The
fragile has no option. But the antifragile needs to select the best option.
Instead
of trying to predict what is going to happen, position yourself in such a way
that you have optionality. Rank things according to it. The bigger the
asymmetry between its downside and potential open-ended upside, the better the
option.
Optionality
is no different from what we call options in daily life - the vacation resort
with the most options is more likely to provide you with the activity that
satisfies your tastes, and the one with the narrowest choices is likely to
fail. You need less knowledge about the resort with broader options.
Summarized
- Look for optionality; in fact, rank things according to optionality.
- Preferably options with open-ended payoffs.
- Do not invest in business plans but in people, so look for someone capable of changing six or seven times over their career.
- Make sure you are barbelled.
