Fragility vs. Antifragility in Financial Markets
Why Predicting the Future is a Trap
I’ve been thinking a lot about how to handle uncertainty and forecasting errors in our daily lives. Detecting fragility and antifragility is much easier than accurately predicting what will happen.
Every investor should minimize damage and maximize benefits from any forecasting errors that may occur. This means having things that don’t break or, even better, that improve if we make a mistake. We can’t predict the future in general, but we can foresee that those who rely too much on predictions will take more risks, face more problems, and perhaps even go bankrupt. Why? Because those who depend on predictions are fragile to prediction errors.
For example, a motorcyclist who relies on the prediction that the asphalt will always be in good condition and that the curve won’t be slippery is at much higher risk than one who doesn’t trust that prediction.
Our portfolio is antifragile simply because it operates in a completely opposite manner to its fragile prey. The method of our portfolio is quite simple: identify fragile units and bet on their collapse. This approach has made me reflect on how we can apply antifragility to our own lives and decisions.
