A note from the founder - Jul 22

How to be anti-fragile?

The author Nassim Taleb invented the term “anti-fragile”. What does anti-fragile mean? 

When we say something is fragile, we mean that it breaks when there is a stressor applied. It could be an object (say glass), or a person’s financial security.

The opposite of fragile is not robust. Robust is something that can withstand stressors say a brick wall. Even a robust wall will break if the stressor, is big enough. However, anti-fragile is a concept that goes beyond being robust. Anti-fragile is something that gains from stressors. Not just withstand the stress but benefit from stress.

How does this apply to us and to our finances?

All of you who have a financial plan for yourself, are on your way to being robust in your financial life.

What makes one anti-fragile in money matters? In my opinion, three things,

a) Being Debt free: Having an obligation to repay a loan is a constraint that can test you in times of economic stress. Losing a job, salary cuts or losing some investments are some stressors. These can happen to anyone. Being debt- free allows you to take more risks, as there is no obligation or due that is preventing you from taking advantage of possible opportunities.

b) Having multiple sources of income: A single salary in the family is less robust than two. Similarly, sources of income can be many - spouse income, rent, interest from deposits or bonds, dividend income, hobby income, freelance/part-time income, share of income from family business etc. The more sources of cash-flows one develops, the more robust your situation.

c) Having sufficient savings in financial assets: The more savings or assets that you have created makes you financially confident as there is buffer against possible stressors.
Having a+b+c = Anti-fragile.

Being anti-fragile can enable one to benefit when the world around you has economic distress. Today there is a talk of recession in the developed world, and the markets are down. It is people who are anti-fragile, that will make long-term bets for long-term gains. Simply because they can afford to do so. In 2009, when all the investment banks were failing one by one, Warren Buffet made a lucrative deal with Goldman Sachs, the no. 1 investment bank on wall street, over a phone-call. Buffet invested $ 5Bn and made a profit of $ 4Bn on that deal by 2011 when the crisis was over. 

That is the power of being anti-fragile, of benefitting when everyone else is economically stressed.