Antifragile by Nassim Taleb

A book review and notes on Taleb’s Antifragile. I read it back in 2018 so I’ve had to rely on my marginalia notes, which hasn’t been a problem as it turns out I was not sparing with my thoughts.

Review & Rating: 9/10
To Taleb’s credit, as he goes in-depth on the idea of how those that stand the test of time are valuable, I do think this will be one of those books I revisit time and time again.

Such was the exact reason why I decided to take the time to review my notes from two years ago as I wanted to get familiar with the concepts again. Much to my delight, I came away with additional learnings and reinforcement to the evermore critical models of antifragility.

There are lessons to apply not only to investing but to one’s career, daily activities, and mindset. I would rather look at it as a way of building one’s system whether it be how one picks books to read, how one thinks about diet, exercise etc…

Though the core idea of antifragility is about asymmetric payoffs, another key model is via negative….the idea that less is more. It’s not just the simple concept of how subtracting is powerful but the way Taleb walks you through his logic makes it oh so obvious.

Book Notes:
The Black Swan problem states it cannot be predicted. These being material and rare events. By definition, anything I think is a risk is not the true risk for the true risk is something I would not have been able to consider.

Antifragile is anything that net benefits from random events. Where it can exploit each event and take advantage. Just being able to withstand it is robust.

I think entrepreneurs make the difference on whether a company will be antifragile or not. The leaders will be the ones who rally the troops to go on the offensive in a crisis. Mercenary CEOs will just want to stay put, minimize the damage and escape.

Naturally, you want a battle-hardened founder and company. A company that is always competing somewhere. Complacency creeps up like poison.

People rationalize. But that’s not necessarily rational. Rationality might actually be subjective to context.

Some examples of antifragility: Nietzsche, Roman stoics, VC, entrepreneurship, long volatility trades, decentralized systems, principal-operations, small generalists, writing

Think hormesis. You need to stress the body to grow. That’s antifragile.

If one is merely protected from harm, that’s robust. Not antifragile. The stress must lead to growth for it to be antifragile. Phoenix vs. Hydra. One just doesn’t die while others gets stronger.

The test for self, the more you must conform the more fragile you are. My friend who has a specific dress code of white dress shirt and plain tie every day is most fragile. If your work succeeds on the back of criticism, it’s closer to being antifragile.

Post-traumatic growth. It’s a mindset. Probably the true test of a growth mindset when you not only pick yourself up but grow as a result. Hence, you need to see evidence of many small failures. They are the stressors that foster growth without killing you.

The more politically correct you are, the more fragile your being.

Reputation and caring are inverted relations. The less you care about your reputation the better. The person who cares less wins negotiations. The less you seek approval the more attractive.

Criticism sets one apart. It makes one interesting. That makes one relevant.

The world is complex. One component is randomness. In a complex world, any definitive explanation of a ‘cause’ to an event is probably wrong. Probably best to not think in cause and effect models for much of what happens in the world.

People naturally seek adventure. I think it’s an innate desire to grow. But for something to be an actual adventure, it needs immersion. Not a few hours in Paris to take some photos for social media but actually speaking with locals and immersing in culture, not going to the Louvre and taking photos of painting you don’t give a shit about.

There are no failed soldiers. The same can be said for entrepreneurs. Societies grow on the backs on entrepreneurs and it is those who have overconfidence in their ability but guided by a resolve of vision who will be material to society. Really, every successful nation is built on the backs of failed entrepreneurs.

Mistakes are important because they remind you of what not to do. Its a reinforcement of something one already knows. Those with less mistakes will get blindsided.

One particular benefit of fasting is autophagy, the culling of bad proteins in the body. Capitalism should work like this too with poor companies failing and new ones taking its place. Bailouts stop this evolution. Companies must die for the system to become stronger.

I’m particularly reminded of the Constellation Software organism where hundreds of software companies compete against each other. Constellation as a parent has a decentralized structure and with each unit fighting for supremacy over the other, it creates a stronger organism and others learn from the mistakes of others. This is how business units should function too. I think Tencent does this as well.

Conversely, a large homogenous organization where every unit doesn’t compete but has to play nice with each other will result in strife and eventually all will get wiped out by a single event.

An employee is fragile. A freelancer with many clients isn’t.

Centralization is fragile. City-state governments are not. Look at Switzerland. The same applies to decentralized companies like Constellation. The more decision-making is pushed to front-line units the better. A state made up of small municipalities will reign supreme in states of crisis but also succeed long term. Think Pax Romana, things fall apart when centralization happens.

Small is beautiful. Macro messy is micro beauty.

Soft system over hard system. Soft adapts and is flexible. Hard tries to control and falls to premature optimization believing in linearity of the world….which gives illusions of ST predictability but breaks spectacularly.

Separating work and leisure is a mistake. A useless effort to compartmentalize what should be a harmonious process.

The world might fare better if people actually procrastinated and did nothing instead of doing something stupid for the sake of looking like they are doing something. Time will cure most problems.

The Drachten, Netherlands, streetlight removal experiment led to increase in safety experiment.

Festina Lente = Make haste slowly.

Rather, subtract. Do less.

More data leads to more action. Most of its useless/negative action. Access to more data is actually quite dangerous in the hands of most people. Stupidity hides behind walls of data. The illusion of more data = science.

A misconception about Denmark has being socialist and anti-capitalist. The state collects high taxes but the communes spend it themselves to provide more economic freedom. Yes, if Canada would push spending decisions down to communal levels too…that would make more sense since the upper branches seem to be bad at doing one thing…spending money.

The more fragile something is the more one needs forecasts to prevent it. Rather, accept failure. Prepare for the worst as Munger says. This is where margin of safety comes into play. Not just in valuation but in basic structure. Debt adds fragility and one still needs to forecast out cashflows to meet liabilities.

Knowing you can’t predict, bet on the failure of those who try to predict.

Antifragility = more to gain than lose = more upside than downside = favourable asymmetry

A stoic is a Buddhist that says fuck you to fate.

If I have nothing to lose, then it's all upside. Stoicism helps with setting such a mindset. Having less helps too.

Barbell Strategy = no middle ground with extreme forms on either side => think 90% money market or 30yr treasuries and 10% in seed-stage VC. The idea is to not blow up but have enough exposed for extreme upside. Very much Pareto with 20% giving you 80% of returns. But not have the portfolio be 100% made up of that 20% since it could cause ruin too.

Never play in the middle/mediocrity-ville.

Barbell strategy in careers => writers like Kafka, Claudel, Stendhal worked in stable gov’t jobs while writing at night etc… Same can be said for working styles like periods of intense work for short bursts and prolonged breaks.

This barbell view is similar to Pareto with an added twist of risk awareness. Being aware of terminal loss. But keeping in mind focus on the most important things and having long breaks to recuperate. Very much like powerlifting with 10second sets followed by 5-10min rest in-between sets.

Barbell is about avoiding the risk of ruin.

People don’t actually know what they want until you provide them for it. As Jobs and Khosla eluded to, the customer doesn’t know isn't right. Just focus on asymmetric bets of "heads I win, tails I don’t lose much"

FU money is wealth. Wealth is independence. Where there are only options, not obligations. It can be a mindset for many when they see themselves making a choice on the options that are available.

Dispersion of outcomes to extremes makes options more valuable. The more polarizing your ideas, the more antifragile they are, the way to accumulating the true fans. You only really need the 1,000 true fans.

Focus on the tails. Society will grow when we increase the number of entrepreneurs. Not the number of academic achievers who want cushy jobs. It’s not raising the status quo but focusing on the minority who take the big risks to build companies.

Go long gamma = benefit from volatility and variability.

What is truly irrational is if one opts out of a game where the downside is nonexistent with high upside. If ever there is a risk of ruin to the individual (we must ignore statistics played out over 100s of lives since we only have 1 life) then it is rational to not play the game. Like adopting driverless tech until enough testing has been done and not being the first person riding the Wright brothers’ plane.

Domain dependence. A volatile business like treasure hunting is not in trouble if it has a quarter of no treasure. That is normal. A steady utility business on the other hand will be in trouble with the same result. People forget that and overgeneralize.

Most processes: tinkering -> heuristics -> practice -> tinkering again -> heuristics -> practice, apply again….then it eventually goes to academic theory.

Epiphenomena = casual illusions, mistaking association with cause and effect. A belief that short hair means one must be a male just from exposure to it before. Same for believing a tie means one is important or believing a rich country with a good education system to mean a good education system will result in a rich country. All just not true.

Halo effect = transferring excellence in one field to another. A basketball player being a great investor or chess player being a great strategist. Some do but it’s not because they are great in that specific area.

Taleb respects economist Chang Ha-Joon, then he must be worth reading about.

People think war leads to rise in oil prices. Until it doesn’t anymore. Same for when people thought bonds go up when stocks go down. Until it didn’t anymore. People think there are causal relationships when there really isn’t.

“In theory there is no difference between theory and practice; in practice, there is.” - Yogi Berra

The more something relies on accuracy of forecasts the more one should avoid.

Ideas survive not because they are right but because the people that survive carry those ideas. Over time, they become embedded as wisdom.

One should only get a PhD after obtaining empirical experience. For if not, how can you write/research anything of value to the real world? Hence the notion that history is written by losers as PhDs merely verify what has been empirically true for a long time.

Internet was for military use, Coke was a pharma company, Tiffany was a stationary store…no business plan survives practice and no-one can forecast.

In extremistan, diversity. This is where the spray and pray of VC may make sense in angel investing (or early investing scenarios) because you can’t predict as there can be massive business drift…hence you want to be in as many as you can.

Applied to investing in businesses => look for optionality, with open-ended payoffs (asymmetry) and invest in people not business plans. Find people who can reinvent themselves and the business over and over again.

Avoid boredom. If a book bores you, then stop. Adopt flexibility. Follow the trail of books that ignite your curiosity. Tinker. Trial and error your reading.

Taleb describes his immersion into the world of probabilities as effortless. A clear obsession. It hit him so clearly that he had to go deeper and deeper and this also meant he would get bored of some books but he would go deep into another book on probability. This is what one’s calling looks like. An effortless immersion.

Using books on topics to test whether one is truly interested in an area would be a worthy test.

“What is not intelligible to me is not necessarily unintelligent.” - Nietzsche

To obtain knowledge, one must try, fail and try again. It’s a constant practice of doing that leads to actual knowledge.

It’s not the probability of winning or losing that matters but the magnitude of the payoff. Reminds of Soros that it’s not how many times you are right but how much you make when you are right and how little you lose when you are wrong. Slugging % over batting average. Think of whether you’d fly in a plane that is 95% safe compared to one that is 99.5% safe. It’s not a big % difference but the magnitude of being wrong is death so it’s rational for me to not take the 95% chance. Some probabilities don’t work in real life.

Big is fragile. The bigger you get, the more a shock can hurt you. Hence, a constant decentralization is required…where the company becomes it’s own world of micro-organisms (decentralized units). There will be one ruler but decision is made at the lowest levels as everyone has skin in the game.

Always think about how a system will handle failure. It’s not about how amazing an optimized system will perform when everything is going well but what happens when it fails? Like an airport when shit hits the fan? If a system has negative asymmetry then it’s a bad system.

Another negative asymmetry example is travel times. Travel times only seem to increase due to delays. You rarely (if ever) see a plane leave and arrive ahead of schedule.

A benefactor of the negative asymmetry are all the safety equipment manufacturers for airplanes, as they can’t risk failure so Transdigm and call a high price. Same probably for Ecolab and Intertek.

Via negativa. What Munger calls inverse! You win by not dying. Focus on not making stupid decisions. Focus on disconfirming as it’s easier to know what is wrong than what is right.

One would do well to avoid ignorant people, saying no to most ideas (investment, business etc…), saying no to most requests…less is more. Be proud of the things you didn’t do. Ignore most data as they will only distract and harm. Only a few things really matter so subtract all else.

The value of the pros and cons list is not because it tells if you more pros or not but rather that one point outweighs everything else. Look for the obvious decisions. This is exactly Munger and Pabrai says for investing too. It should be so obvious that it hits you like a truck.

Why economic stats are irrelevant => just look at all the Black Swan and tail events that run the world.

Examining the past may give some cadence to seeing the future. Forecasting is hard. But the longer something has stood the test of time the longer it will be relevant in the future. This is the case for books. Literary classics that are 100+ years old will probably relevant 100+ years from now. Comparatively, a new book from last year will probably not last more than a year. Same for technology. The fork and plates are really old. We’ll probably continue to use them in the future. Same for shoes, chairs, tables etc…. The longer we’ve used something the longer it will be relevant. But an app? Probably will lose to a fork.

Much of technology now is moving analog to digital. They’re eerily similar. We wrote on clay tablets, now we have an iPad. People still write with an ink pen on paper like hundreds of years ago.

Taleb refers to the older things last longer = the Lindy effect. A power law for non-perishable info/ideas.

This applies to news. Timely material is obsolete quickly. Better off reading classics.

A right doesn’t correct a wrong. Instead, focus on eliminating wrongs. Exercise doesn’t make your smoking habit acceptable. Just quit smoking. Remove irritants in life.

I love his rule that anything that is advertised as “healthy”, “social”, “science” is probably the exact opposite. If it was actually healthy, probably wouldn’t need to advertise it. Look at water, eggs, veggies, meat etc…

Owner-operators have skin in the game. Hence they are more likely to not take risks that might blow them up. Not true for mercenary CEOs of large corps. Look at banks for example. Look at politicians. Most bosses in bureaucratic institutions have no skin in the game for their actions.

Also consider the whether someone can truly have independent thought based on their structure. Someone who faces career risk with what they say and think may not be someone worth trusting compared to someone who is free from that. Really, the best way is to ask them to show you what they’ve done.

Hence, don’t ask your doctor what you should do but rather what he would do in your place.

I’ve always had a negative outlook on companies that advertise their products and looked at the advertising market with distaste with the belief that if it has to be marketed no FB, then it’s probably an awful product. With more and more SMBs doing this, I wonder if that is still a valid theory. However, the opposite is probably true that the best products don’t need to be marketed. Hence, I’m fine to avoid any product that is marketed.

Would one do well to only invest in businesses that did not need to acquire customers with ads? I think so.

A free man is free with his time and opinion. Both requires FU money but what’s more important is the mindset as many with FU money aren’t free.

Taleb wonderfully ends with a simple idea: big and fast are abominations.