A few days ago my preteen son was unable to sleep as he thought about the Nepal earthquake. He knows about the major fault lines along the Wasatch Front near our home in Utah, and he was concerned we would be involved in a similarly devastating earthquake. Do you worry about the impact that unpredictable, devastating, and rare events might have on your life? These events may include natural disasters, worldwide economic downturns, war, loss of income, or personal health challenges.
What if instead of fearing these adverse events, you can be prepared to benefit from them? Wouldn’t this bring more peace and confidence to your life?
Benefiting from chaos, disorder, and unpredictable events is a concept outlined in a book I recently listened to: Antifragile: Things That Gain from Disorder by Nassim Nicholas Taleb.
Antifragile a word made up by the author, and the concept can apply to many things. In this post I’ll focus on building an antifragile life.
Our life is fragile if it can be easily broken or damaged by adverse events. You may think that the opposite of fragile is a life is one that is not easily broken or damaged by adverse events. However, the author defines the opposite of fragile, or antifragile, as something that benefits from seemingly adverse events.
Here are four ways we can build an antifragile life:
1. Get out of debt and build a financial reserve
An individual loaded with maximum debt is fragile. Many families choose to take on a level of debt with which the minimum payments fit within their budget, but barely. They are fragile to even the slightest disruption, such as reduced income or unexpected expenses.
Other budget items, such as eating out and entertainment, can be quickly adjusted down as needed. In contrast, in most cases assets can’t be sold quickly or easily to reduce debt payments. Many types of debt are either unsecured, such as a credit card, or secured by an asset with less value than the debt balance, such as a vehicle.
Living on much less than we earn, and using the excess to build a financial reserve, will make up more antifragile. It is obvious that a financial reserve, no debt payments, and a comfortable budget will make adverse events easier to endure.
But how do we actually benefit from financial shocks? One example is the ability to take advantage of great deals. Those who had a lot of cash in 2008-2009 had unprecedented investment opportunities. The Dow Jones stock market index has almost tripled since its 2009 low. Phoenix housing prices have almost doubled. Vacation properties dropped even more than residential real estate. Businesses and business assets could be bought for cheap.
2. Maximize health
The right kind of adversity can improve our health. When facing resistance, muscles tear, and then the repair makes them stronger than before. Aerobic capacity increases as we sustain an increased our heart rate, such as while running. Exposure to a small level of dangerous microorganisms can make us less susceptible to its affects in larger quantities (i.e. the principle behind vaccines).
However, we need a reasonable baseline of health before this adversity can be beneficial. A person with a weak heart shouldn't go on a long run. A person with weak bones should not try to lift heavy weights or play basketball. A person with unconditioned muscles and tendons should not try to sprint. How many people who are older and more out of shape than they think they are pull muscles while attempting to run around the softball bases!
3. De-risk career
In the book, the author compares two brothers. One has a good education and has had a long career in the HR department of a large corporation. The other has little formal education and is a New York City cab driver. The HR brother has a steady income while the cabby brother’s income varies widely each day.
Even though the HR brother makes more money and may appear to have a better career than his brother, the author argues that the HR brother is fragile while the cab driver is antifragile. The HR brother could lose his job at any time, which would completely cut off his income. The cabby brother has more sources of income than he can possibly take advantage of (millions of people in one city). If his income drops on one day, he can quickly adjust by moving to another area within the city.
You don’t need to own your own business or become a freelancer to be antifragile. You can build a strong network and solid reputation. If you lose your full-time position, tapping your network might even lead to a better opportunity.
Another way to become antifragile is to develop a career that comfortably pays the bills while allowing time and freedom to pursue other interests, such as a side business. The author is a professor of risk engineering at the Polytechnic Institute of New York University. This position allows him the freedom to research and write his books. Einstein had a well-paid and relatively undemanding job at a patent office, which allowed him to think about his most impressive ideas while working.
4. Look for minimal downside and maximum upside
Another way to become antifragile is to focus time and attention on opportunities with minimal downside and maximum upside. Of course, these kinds of opportunities aren’t always obvious, but it’s a good principle to keep in mind as we choose how to spend our precious time.
He uses options, the financial instrument, to illustrate this principle. Options allow you to buy the right, but not the obligation, to buy (call options) or sell (put options) something at a given price (usually shares of stock in a company). If you buy a call option, you have virtually unlimited upside as the stock goes up, and your downside is limited to the price of the option.
Education is a good example of this principle. The only downside of education is the time and cost, which are measurable before you begin, and the upside can be unlimited if applied appropriately.
Another example is working for a promising startup company and receiving equity as part of your compensation. Assuming you don’t have your own money invested, the downside is the opportunity cost of something else you could have been spending your time on and the risk of losing your job. The downside is no different than working for a big company, but he upside is potentially much greater if the company does well and your equity multiplies in value.
There is no way to predict the biggest shocks in life. By becoming antifragile we can prepare ourselves to benefit from inevitable randomness and chaos. Being antifragile can give us greater peace and confidence in our lives.
Question: How can you make your life more antifragile?