In the following videos you'll learn about key takeaways and daily practices from the book Antifragile: Things That Gain From Disorder.
Video Summary by The Swedish Investor and FightMediocrity
Key Takeaways
In Antifragile: Things That Gain From Disorder, Nassim Taleb explains the concept of antifragility. Everything that is alive, and everything that stays alive displays some sort of antifragility. That category of things that not only gain from chaos but need it in order to survive and flourish.
Just as human bones get stronger when subjected to stress and tension, and rumors or riots intensify when someone tries to repress them, many things in life benefit from stress, disorder, volatility, and turmoil.
The stressors lead the individual to success, however there are rules to the game. The stressors can not be too much to overload the system. The antifragile patient must be able to comfortably recover from the stressors.
1: Introducing the triad - Fragile, Robust, Antifragile.
Antifragility exists on a spectrum together with that which is robust and that which is fragile. The difference between the three of them lies in how they react to randomness, uncertainty, stressors, errors and most importantly, time.
The fragile breaks when faced with uncertainty. The robust doesn’t care too much, and the anti fragile — the central point of the book — becomes stronger.
- Fragile something that breaks.
- Robust something that remains the same.
- Anti fragile actually gets stronger/better the more it breaks or gets kicked around.
"Us as humans should always crave disorder. Being anti fragile means being alive."
Fragile example: In Norse mythology, the god Baldur was protected from almost all harm, when his father Odin tried to have every creature and living thing swear an oath not to harm his son. The issue was that he forgot about the mistletoe. And so the evil god Loki made an arrow of the plant and later killed Baldur with it. Baldur, in this example, represents that which is fragile to physical harm.
Robust Example: Another famous creature from the Nordic folklore is the boar Sæhrímnir. In Valhalla, it said that the Vikings killed the boar every evening and feasted on its meat. But every next morning, the boar was resurrected. Clearly it was robust – no matter how much physical damage the boar took from bacon-loving Vikings, it lived to see another day.
Anti fragility Example: take the Vikings themselves. They thought that dying in battle would give them the entrance to Valhalla. So being wounded wasn’t something they were afraid of. This made it so they had an advantage in fighting the fragile Englishman and Frenchman.
Antifragile example: Have you ever dropped a smartphone on a surface other than perhaps your bed door a really soft carpet? Although it hasn’t been invented yet, we can imagine what the antifragile smartphone would be like. Picture yourself throwing your phone in the ground, only to see it multiplied into two brand new phones, upgraded with all the latest software and gadgets.
Fragile Example: Take the stressor of bad reputation and the effect it has on your career depending on which profession you’ve chosen. If you’ve chosen to climb the corporate ladder, you are fragile in this aspect. Any mistake you make will go into your permanent record at the personnel department, and could possibly harm your prospects at the workplace.
Robust Example: Now, take the self-employed cab driver in a large city. It doesn’t matter to him if he makes a mistake with one client, he can just go and pick up one of the other, million potential customers who doesn’t know a thing about how he performed during his last drive.
Anti fragile Example: The YouTuber is antifragile to bad reputation. The more people hate, the more we earn. Not only do negative comments and thumbs down boost the YouTube algorithm, but think about word to mouth as well. I don’t know how many times I’ve been recommended to watch something on the basis of how horrible, cringy, crazy or just plain bad it supposedly was.
So the antifragile is something that likes randomness, uncertainty, stressors, errors, and time, because it gains from it. Antifragility is domain-specific though. The Vikings didn’t gain much from bad reputation, and the YouTuber doesn’t really enjoy physical harm.
Also, antifragility often only works up to a certain point. A Youtuber who gets such bad reputation that he goes to jail can’t be said to have gained from it, I guess. Next we shall see how intervention can turn something antifragile into something fragile.
2. Naïve Interventionism (Bear Favors)
What do soccer moms, your colleague who uses hand antiseptics all day, and the politicians who are bailing out banks, have in common? That’s right, they are turning the antifragile into something fragile.
Kids don’t need protection from every potential harm in life, and neither do they need help overcoming every obstacle. The personal development of an individual is antifragile to harm and obstacles (up to a certain point) or in other words, it gains from it!
Removing these stressors from one’s childhood, on the other hand, is likely to create a very weak and fragile adult. Similarly, using hand antiseptics and staying away from public places because you imagine that you might catch a disease otherwise, will deprive your immune system, which is antifragile, from stressors, causing it to be weaker in the long run.
The removal of such stressors is likely the reason why allergies and autoimmune diseases plague our society today, and the antiseptics, together with the overuse of antibiotics, is strengthening the antifragile bacteria, creating antibiotic resistance.
Finally, we have the economists and the politicians who are intervening in the economy by deeming something “too big to fail” and therefore refusing to let nature take its course. Weeding out vulnerable firms early allows for minimal harm to the system, as they would otherwise grow to cause systemic problems. Nassim Taleb refers to this as “naive interventionism.”
- In sweden, we call it “doing someone a bear favor”
- In English it’s called “trying to help but causing more harm than good” or “fixing things that rather should be left alone”.
There’s this central illusion in life that randomness is a bad thing, and that we can remove randomness by removing randomness. The truth is that we can’t, we will just build up something that is fragile and pay greater consequences in the future.
3. Concavity & Convexity – Detecting What is Fragile and Antifragile
This is going to be a bit technical, but there’s a way of detecting that which is fragile and that which is antifragile.
Fragile Example: Imagine yourself driving a car. You find parking quite difficult, so occasionally, you bump into stuff when parking the car, like neighboring cars, walls, road signs, slow pedestrians … You’ve lost count on how many times this has happened, but when you add up the scratches in the car paints a quick estimation says … maybe 20 times? You didn’t go faster than perhaps 5 km/h (about 3 miles per hour) in any of the accidents.
Now imagine yourself driving that car into a wall in 5 * 20, 100 kilometres per hour (or about 60 miles per hour) a single time. Will it have the same effect on your car? Clearly not. Your car is fragile. The harm is not linear to the stressor, ie the velocity of the impact. Hitting a wall at 5 km/h 20 times will cause a lot of scratches. Hitting it in 100 km/h gives the vehicle a straight way ticket to the car cemetery.
Anti Fragile Example: Muscle growth is antifragile to physical exhaustion. Lifting 100 kilos in deadlift for a single repetition is more beneficial than lifting 10 kilos 10 times.
4. The Answer to the Black Swan Problem
A Black Swan event is unpredictable, and has a large impact. The impact is so big that Nassim Taleb argues that society to a large extent is decided by the outcome of these events.
Negative Black Swans cause a lot of trouble, so it would be optimal if it was possible to foresee them. But well, that’s the issue with the unpredictable. It’s … not possible to predict. What’s far easier though, is to see if a system is exposed to Black Swans.
We do realize that, if an airplane crashes, all of the people on board will die. We can’t foresee exactly WHEN and HOW that will happen, but we do understand that it CAN happen. So what can we do about it?
We can try to change the system from being a fragile one, into being a robust or an antifragile one. By focusing on exposure to failure, we make the predictions about the failure largely irrelevant.
Back to the example of airplanes.
- We check people for weapons before they board a plane. Not because we think they carry weapons, but because the harm we expose ourselves to if we don’t do so is too big.
- The checking of people increases the effort for the airplane personnel, but it’s not comparable to the price that the passengers have to pay, should the accident be there.
In a fragile system, we introduce redundancy to reduce the fragility. Nature understands this well. For instance – humans have two kidneys, two breasts, two testicles (if male) fat reserves, etc.
Also, we are antifragile in that our body overcompensates to stressors. If you do one rep on 100 kilos in deadlift your body will prepare you for lifting 110 kilos the next time.
Humans don’t understand this as well as nature does unfortunately. We tend to remove redundancy for the sake of “efficiency.” We also tend to expect that the worst that we’ve seen is the worst possible outcome of the future as well.
- This is one of the reasons why so many blew up in the stock market in October 1987, when it crashed by 22% in a single day. The worst return from a single day up until that point was in October 1929, with the comparative minor crash of 12%.
- Warren Buffett is famous for having redundancy in his investments. He suggests that one should: “Invest only in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.”
The difference between good and bad systems is this: the good systems are set up to have small errors, independent from each other. In fact, the mistakes are even negatively correlated to one another, as we tend to learn from them.
- For the investor, it’s therefore a good idea to have uncorrelated bets. A portfolio consisting of only stocks from the energy sector, for instance, is fragile to the Black Swan event that a new competitor enters the market with an innovation that beats the living h*** out of the current technologies available. Like … energy made from a small portable fusion reactor or something like that.
Furthermore, an antifragile or robust system often have options. Consider evolution, perhaps the best example there is of an antifragile system. Individuals die and even whole species go extinct from time to another. The surviving genes are “better” than the ones that go extinct – survival of the fittest. How can nature do this?
It’s because of optionality. If the dinosaurs can’t handle the current situation, maybe the mammals can? Optionality can be introduced into ones investment strategy.
- Benjamin Graham famously invested in companies where the business was valued lower than the value of its assets. Such an investment gives optionality. There’s a chance that the company will do well, and in that case, it’s awesome. If the business doesn’t do well though, the company can still be liquidated, and the shareholders would keep a large part of their initial invested capital anyways.
5. The Barbell Strategy
The barbell strategy consists of securing oneself of huge losses, while, at the same time, have an exposure to a large potential upside. It’s the strategy of replicating the convex function from takeaway number 3.
When making your career decision, consider going for something conservative and something hyper aggressive at the same time. For instance. You can combine a 9-5 or an education with entrepreneurial endeavors in your spare time.
Or you can rely on safe investments to produce some income every month, just to put food on the table, while aggressively pursuing the entrepreneurial path with all your time and effort beyond that.
In the field of finance, a lot of professionals misunderstand how to make profits over the long run. They believe that the focus should always be on coming up with bets that make them a lot of money. But what’s most important is something different … The difference appears minor, but it’s not.
What’s most important is NOT to lose. Warren Buffett famously said: “The first rule of investing is: never lose money. The second rule of investing is: never forget rule number one.”
And if you don’t take Buffett’s word for it, consider that Ray Dalio, another one of the top 100 richest in the world, who also made his fortune from investing, says this: “Make sure that the probability of the unacceptable, ie. going bust, is nil”
The barbell can be achieved by putting a large chunk of your portfolio in hyper conservative investments and a smaller chunk in hyper aggressive ones. This is discussed in the summary of the Black Swan. There is a convex relationship between how many times you hear something and how long you can remember it for.
Part 2
6. The Lindy Effect
There’s another way to detect what is likely to be fragile, and what is likely to be antifragile, and it’s determined by the so called Lindy effect.
Pretend that you’re the owner of a life insurance company. Your business model is that you’re paying $1 million if a person dies. Who would you have paying the higher premium?
1. An 80 year old, who is perfectly healthy.
2. The thirty year old, who is also perfectly healthy?
Given this data, You would expect the 30 year old to live longer than the 80 year old, and therefore the 30 year old would have to pay a much higher premium for his insurance.
Now, pretend that you’re the owner of another life insurance company. This one has a different kind of business model. It’s insuring against books disappearing from the New York Times best selling list. Which author would have to pay the higher premium?
1. The author of the book which has been on the list for 10 years
2. The author of the book which has been on the list for 10 months?
We realize that the situation is the exact opposite than from the first example. The author of the younger book would have to pay the higher premium. Why? When it comes to non-perishable things, that which is old, is also that which is expected to survive the longest.
This is the Lindy effect. The future is in the past. If something has been around for, say ten years, we can probably expect it to be around for another ten. If something has been around for a hundred years, we can expect it to be around for another hundred! Things that have been around for a while are not “aging” like persons do, but rather, aging in reverse.
In the first video, we discussed how to identify that which is fragile and that which is antifragile. The Lindy effect is a great indicator for this. If something has managed to survive for a long time, be it an idea, a habit, a building, technology, a book, or a company, we can conclude that it’s either robust or antifragile.
We can do this because time is the ultimate stressor. Something that has survived time has necessarily also survived a lot of random events. That which is fragile would therefore have gone extinct.
Here are three implications for investors:
1. Companies that have been profitable for many years should be valued higher than those that have been profitable for only a few, everything else equal.
2. Fund managers with a long positive track record are typically a better choice than young superstars.
3. Betting against that which is fragile turns out to be an antifragile strategy.
In time, those who reaps small, known benefits, while exposing themselves to large, unknown losses, will be the suckers. Take the opposite side of such a bet and you’ll be a winner. Warren Buffett says: “Only when the tide goes out do you discover who’s been swimming naked.”
7. The Green Lumber Fallacy
A guy named Joe Siegel (according to the story) was one of the most successful traders in a commodity called “green lumber.” The other traders couldn’t understand how this guy was a success. He didn’t even know the most fundamental property of this commodity – that green lumber referred to freshly cut lumber, not lumber that was colored green, which Yossi Joe thought. The other traders went loco over this. How can such an ignorant person be a better trader than them?
The green lumber fallacy is a situation where we mistakenly think that some, visible knowledge, is the key ingredient to success, when it’s something else entirely. Something less visible, less narratable.
Joe Siegel might not have been aware of the fact that green referred to freshly cut, but for sure, he knew other things about the commodity. Things much more relevant for being a great trader in it.
Nassim Taleb had a similar colleague when he himself was trading professionally. The guy was the most successful trader at the department in Swiss Franc, the currency of Switzerland. Yet he couldn’t even point out on a map where Switzerland was situated! He didn’t know which languages they spoke there, and he had never visited the country.
Herein lies an important takeaway: Humans care a lot about narratives. If someone can’t explain why they are successful in a field, like for instance, they state that they are great traders of green lumber, yet, they don’t even know what green lumber is, we don’t trust them.
But reality doesn’t care about narratives. Reality only cares about getting things done. And which factors that are causally leading one to become successful, can sometimes be hidden from us. We judge people as ignorant when it’s just us who are ignorant.
8. Less is More
Consider this statement: “That guy clearly is a criminal! He has bad table manners, he killed a lot of people, he has bad breath, and … and is also a poor driver!”
When looking at this example, which factor or factors do you think matter for the statement “he is a criminal”? I would say it’s number two. Here, it’s quite easy to identify what is signal, in other words what’s important, and what is noise, in other words, that which doesn’t matter at all.
In reality, the separation of signal and noise isn’t always as simple, unfortunately. Data is plentiful because of connectivity, but data is toxic in to large quantities, because more of it will be noise and only some of it signal. The more data the lower the percentage of signal. In other words: less is more.
If we are paying attention to the eye colors of the people around us when crossing the street, we might miss the big truck. Did you log into your online brokerage account today to check the returns of your portfolio? Well, I did, and I was kind of pleased.
Then I had to remind myself – does this really matter? And the answer is of course .. No, it doesn’t. The daily fluctuations of your portfolio are probably about 99% noise and only 1% signal. That I made 1.47% in a single day in the stock market means nothing. I repeat: nothing.
It’s important to consider this, because when we are making important decisions, be it when investing, when choosing a partner, when buying a house, or whatever, we want our choice to be based on signal not noise.
If the situation would have been the opposite, that I lost 1.47%, and I decided to sell off some of my companies because, well, I don’t want companies with negative returns, I would have based that decision on 99% noise. I would be much better off checking my portfolio once or twice every year for such a decision.
Again: less is more. We check less often, but counter intuitively, this gives us more information than checking frequently, as the information consists of more signal and less noise.
Many fund managers are suffering from this. They are reshuffling too often in their portfolios as a result of recent performance. Here’s what Warren Buffett thinks about rearranging in your portfolio: “Don’t do something, just stand there!”
In the last video, I talked about naive interventionism, which is when someone is interrupting in a system that works perfectly fine. Information overflow is one thing that causes this.
You don’t need to read the news every morning, or check the daily fluctuations in your portfolio to become a great investor. Significant signals, the only ones that you should be acting on, always have a way to reach you.
9. Via Negativa
As mentioned in takeaway number 7 about the green lumber fallacy, finding causal relationships is often very difficult. People want to know how to do something, but it’s usually equally good (if not better) to know what NOT to do. Subtraction is often more robust in regards to causality than addition is.
Remember Nassim Taleb’s favorite example about the Black Swan? “No amount of observation of white swans can allow the inference that all swans are white, but the observation of a single Black Swan is sufficient to refute that conclusion.”
Here are three additional examples:
Happiness. What makes you happy? Now, what makes you unhappy? Most people find it easier to answer the second question. Happy, oh .. friends & family, and .. money perhaps? Unhappy? Yeah! I hate it when my boss is micromanaging me, when my kids aren’t listening, when I back out or something because of fear, having a hangover, feeling nauseous, stupid politicians, nagging parents, when my IPhone goes out at 50 percent battery because it’s cold outside, getting wet socks, etc. etc.
Via negativa, we can improve our life a lot by removing the things that we dislike. Not only is it easier to say what makes you unhappy, but it’s usually easier to know what to do about it too.
Focus Here’s an interesting one. Steve Jobs famously said this: “People think focus means saying yes to the things you’ve got to focus on, but that’s not what it means at all. It means saying no to the hundred other good ideas that there are.”
Medication On the topic of naive interventionism, medication is probably ranked the highest. Over medication plagues our society. Exposing yourself to an unknown, unlimited downside, for the sake of a known, small upside, is not a great strategy. Especially when dealing with your greatest asset, your body.
Avoid all medication and all doctor visits, except for truly severe cases. Oliver Wendell Holmes and 19th century poet and physician: “If all medications were dumped in the sea, it would be better for mankind, but worse for the fish.” And here’s how Nassim Taleb expresses it: “If you want to accelerate someone’s death, give him a personal doctor. This might be the only way to murder someone while staying perfectly within the law.”
10. Optionality and the Potential Pitfalls of Wealth
Consider what happens when you gain success from a lot of wealth. There’s an interesting property here, you now have more to lose than to gain, or, in other words, you’ve become fragile. It’s the opposite of the barbell strategy from the last video.
- Excess wealth, if you don’t need it, is a heavy burden.
- Beyond some level, it forces people into complications of their lives.
- Wealth without true optionality, being able to judge whoever you want, spend your time however you want, with whomever you want, is wealth not worthy of pursuing.
- And of course, wealth used right can also be an agent of optionality.
- It’s difficult to go heli-skiing, eating at a Michelin restaurant or buying VIP tickets to the next UFC event without a lot of money.
- Plenty of people are poor against their initial wish and only becomes robust by spinning a story that it was their choice to be poor, as if they ever had the option. One convinces himself that the grapes he cannot reach are sour.
- So you want money, but you also want optionality to grow with your wealth.
A top executive at some large company usually have a lot of money, but does he really have optionality? I would argue no, he doesn’t. His wealth has only complicated things. He’s not free with his time because he’s expected to show up in New York next Monday, Buenos Aires on Wednesday and Tokyo on Friday, where he will also spend the weekend.
He’s not free with his opinions because criticizing the CEO of the company, may result in him losing the job, and that would be problematic, as his lifestyle is dependent on that income. Three kids who want to go to Harvard at some point, a wife who’s a shopaholic (and probably married him to satisfy that need) a large mortgage on four different luxury vacation homes … Yeah, you know the drill.
Greed is antifragile to income. This is called the treadmill effect. Instead of the top executive situation, strive for circumstances of true fu money.
Nassim Taleb definition of it is: “A way of achieving independence and the ability to only occupy your mind with matters that are of interest to you.”
Productivity Game Animated Summary
Key Takeaways
"Difficulty is what wakes up the genius."
There are three types of people in this world: fragile people, resilient people, and anti-fragile people.
A fragile person is like a candle that blows out after an unexpected gust of wind comes their way. Fragile people have a hard time dealing with unexpected events.
A resilient person is like a torch with a large reserve of fuel. An unexpected gust of wind might reduce the flame for a bit, but when the wind passes, the flame returns to its original state.
An anti-fragile person is like a bushfire. The gust of wind does not extinguish the flame, it energizes it. Anti fragile people don’t just endure an unexpected shock, they benefit from it.
We can all learn to develop a hydra mentality and become anti-fragile by cultivating three practices into our daily lives.
Incorporating these three practices will make us sleep soundly at night knowing whatever happens will not only handle it, but benefit from it.
3 Daily Antifragile Practices
1. Cap Your Downside
"When you become rich, the pain of losing your fortune exceeds the emotional gain of getting additional wealth..."
That is you’re much more afraid to lose $10,000 than to gain $10,000, so you start living under continuous emotional threat.
A rich person becomes trapped by belongings that take control of him degrading his sleep at night, raising his stress hormones and diminishing his sense of humor.
When the threat of loss looms larger than the prospect of gain, a small loss can cascade in our mind and convince us that we’ll lose everything that we worked hard for.
Once you fully process that loss and feel that you could emotionally withstand a complete loss if you had to, you have effectively capped your downside.
"When I was a trader, a profession rife with a high dose of randomness, with continuous psychological harm that drills deep into one's soul, I would go through the mental exercise of assuming every morning that the worst possible thing had actually happened and the rest of my day would be a bonus."
Contrary to what books like the secret and the power of positive thinking say, rehearsing loss will actually make you more positive, more grateful, and more ambitious than simply imagining the perfect life.
2. Seek Eustress
Stress in the right context and for the right amount of time, does not drain energy, it creates energy. It does not damage, it stimulates growth.
The type of stress that motivates, increases focus, and stimulates growth is called eustress.
When you go for a short workout after a long and exhausting flight you put more stress on your body but actually feel better than you did when you got off the flight. That’s eustress.
If you routinely seek out eustress you will change your relationship with stress because you associate stress with growth.
Eventually you’ll get to the point where if an unexpected event occurs and you experience stress, you don’t run from it. You lean into it.
My go-to method for experiencing the benefits of eustress is interval training.
- At least three times a week–either running, biking or swimming–I warm up for three minutes, go all out for a minute, rest for two, go all out for another minute, rest for two more, then go all out for a final minute. Then rest and stretch.
The positive effects of this interval training kick in right away. It immediately feels like someone’s just hit a reset button on my brain and I have more mental clarity and energy.
The positive effects don’t stop there. Interval training stimulates the growth of more mitochondria, which are the power generators in your cells and allow you to burn more energy, more efficiently, which effectively lowers your resting heart rate.
Other types of physical eustress that have minimal downside and huge upside include:
- 30 second cold showers
- a few rounds of tumble breathing or better known as wim hof breathing. That’s 30 rapid breaths followed by a max breath hold
- 16-hour intermittent fasting.
3. Overcompensate
Overcompensation is the essence of anti fragility.
Your body is anti-fragile because when you shock your body by bench pressing the maximum weight you can bench press–say 200 pounds–your biology will overcompensate and add muscle to your chest and arms so that you can lift 210 pounds the next time you go to the gym.
If you make over compensation your default response when you experience an unexpected setback, your mind and body will be anti-fragile.
Here are three concrete ways that I’ve applied the principle of overcompensation:
If I miss a critical putt in a golf match with a friend, I practice a similar putt 50 times on the putting green afterward.
A few months ago when I made several spelling mistakes on a single one-page summary, I overcompensated by revamping my editing process and incorporating a five step editing process for every document I write.
- Now I print out and underline a document
- Read it out loud
- Use grammarly in advanced editing software to check for errors
- Then use a separate software program to have the document read back to me
- Then I get at least one other person to read the document and review it, typically my wife.
In the last decade, I made several poor investment decisions that have cost me so now when I make an investment decision, I write down my rationale as to why I’m buying or selling and use a checklist of biases to make sure I’m not making a faulty decision.
When you make a mistake or suffer an unexpected loss or setback, respond in a way that all but guarantees you will come back smarter, faster and better.
The more you over learn and overcompensate after a mistake, the more anti fragile you’ll be because everything you do has an upside–you either succeed or you improve.
Conclusion
Resilient people endure shocks and remain the same, but anti-fragile people absorb shocks and get better.
The first step to becoming antifragile is to cap your downside by mentally rehearsing the loss of your possessions and your professional status so that you see the upside in everything that happens during the day.
Then seek eustress to change your relationship with stress by either weight training, fasting, interval training or breathing.
Then when you make a mistake or experience a setback, overreact by overcompensating.
Once you become anti-fragile you will sleep like a baby because you know what whatever happens you will not only survive, you’ll thrive.
How to Build Mental Toughness - FightMedicority