This post was sent to my newsletter on October 18th, 2020
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What I Learnt from Antifragile (II)
I fell sick and missed writing last week.
I have to live up the name of the news letter, anyhoo.
It would not be erratic without me whiffing once in a while, non?
Apologies all around, anyway!
The Barbell Heuristic to Taking Risks
Basically a shortcut to figuring out whether you ought to do something or not, based on the risks it entails.
How do we take a decision, when we don’t know all the pros and cons?
How do we decide in an uncertain world?
What kind / amount of loss am I willing to accept, to gain some reward?
Life basically consists of three outcomes:
- The safe outcome, with little to no success, but you don’t lose anything
- The normal outcome, with some middling success, but you stand to lose some.
- But here’s the kicker. You might stand to lose everything, if you don’t understand the risks you take, or if the risk is unknowable. (Blow ups due to these unknown risks are what are now popularly called, thanks to Taleb’s earlier book, Black Swans)
- High Risk, high reward! You know you will lose, but if you win, you win Big! It helps if you take risks with a domain that you have deep expertise in.
Taleb suggests that the best and safest way, to make decisions that propel your forward with minimal risk, is to ignore point 2 altogether.
Most of your daily life decisions ought to be with point 1.
Some of your decisions you, go to point 3.
Your strategy is to be as hyper-conservative and hyper-aggressive as you can be, instead of being mildly aggressive or conservative.
— Taleb, The Black Swan
And that is the barbell strategy.
It looks like an unbalanced barbell actually, like the one on the cover of his next book, Skin in the Game.
This is what will give you maximum peace of mind.
Risk taking also becomes easier, if you have options like I pointed out last week.
The best worst case scenario, is one that you have the option to reverse. (like buying something you need, but uncertain about how it’ll be? Easy to buy it, if the thing comes with an option to return it if you don’t like it.)
Three personal life cases,
I don’t understand investing.
I do know, that I need a nest egg for when Abby & I are old :)
Ergo, barbell strategy.
Most of our money is parked in safe investments like the Provident Fund and fixed deposits.
And some of it, in risky stuff like stocks and equity mutual funds. (since this is not my domain of expertise, I pay someone trustworthy to help me out.)
So if the market crashes like it did earlier this year, I was not as worried as other folk.
I did not lose my shirt.
I could follow, what the given advice at the time was (Stay Invested) with a clear, calm mind.
And I am confident, compounding will work its magic over time over both sets of investments.
Let’s put the barbell, to work here too.
Your safe, boring job is one end of the spectrum.
Your risky side projects, hustles, are the other.
You need both.
You could either do both together, or serially.
Work a safe job for a few years, then take up a risky moonshot, and if it doesn’t pan out, go back to another safe job.
While right now, I am in between jobs, due to health reasons, in my earlier lives, I had pretty boring jobs.
But, I write a lot. I teach a lot.
And that brought me a lot of opportunities that helped me through really trying times in the past two decades.
This is relevant to me, because it helped me get fit over the past year.
I have three slipped discs.
Do I have surgery?
The docs are undecided. Or rather they are, but are unwilling to guarantee, how long the surgery would help me.
And I had bloated to 98 odd kgs at my worst.
What do I do?
So, the safe thing to do was to lose weight.
And the hard thing to do was to get strong.
Both of which, are progressing along nicely.
I lost 30 kgs and am doing aggressive physio to build up my back muscles, so that my poor vertebrae don’t have to do all the heavy lifting by themselves.
I feel much better today, better than I did in my twenties!
And that about does it for using barbells to help make decisions.
That’s all we have for you this week :)
I really do hope, this little heuristic, changes your life as much as it did mine :)