10 Principles (actually 9) which ensure that First Financial Accident that occurs does not make You Bankrupt

One of the writers whose posts I ensure I don’t miss is Shane Parrish of Farnam Street. What I like about Shane is his philosophy which states: “I am not smart enough to figure out everything myself, so I try to master the best of what other people have already figured out.”

This makes sense…a lot of sense…isn’t it?

In one of his recent posts, he focuses on the principle of AntiFragility – a concept popularized by Nassim Taleb in his book Antifragile. Simply speaking, antifragile things are things that benefit from disorder, obstacles, unexpected events, change, etc.

Some examples which better explain this concept of Anti-Fragile are –

  • Muscles become stronger when they are pushed to the point of failure.
  • What doesn’t kill you makes you stronger.
  • Natural selection, survival of the fittest, where the weak or unadapted perish, leaving the fit to continue on more suited to the environment.
  • The mythical Hydra, that grows two new heads every time you cut one off.
Hydra – Grows Two Heads Every Time You Cut One

Now being antifragile is not the same as being robust or resilient. Being robust or resilient means that you bounce back quickly from disturbances.

Example: A building can withstand a 9.0 earthquake OR our skin can quickly repair itself after cuts and bruises.

AntiFragility means something else.

In words of Buster Benson, whose post on Living like Hydra makes an excellent case for anti-fragility:

An antifragile way of life is all about finding a way to gain from the inevitable disorder of life. To not only bounce back when things don’t go as planned, but to get stronger, smarter, and better at continuing as a result of running into this disorder.

Here are 10 key principles which these writers think need to be incorporated in one’s life to live a life which can be referred to as an antifragile life:

  1. Stick to simple rules
  2. Build in redundancy and layers (no single point of failure)
  3. Resist the urge to suppress randomness
  4. Make sure that you have your soul in the game
  5. Experiment and tinker & take lots of small risks
  6. Avoid risks that, if lost, would wipe you out completely
  7. Don’t get consumed by data
  8. Keep your options open
  9. Focus more on avoiding things that don’t work than trying to find out what does work
  10. Respect the old –  look for habits and rules that have been around for a long time

As you can see, all the above principles (except one) are applicable to one’s financial life as well. When it comes to finances, I prefer to play safe and not experiment much. I know markets are supreme and have a knack of playing with our minds and with any experiments which our minds would want to do every now and then.

It may not be applicable to everyone, but I prefer not to make mistakes in stock markets, even if it means that I will not be able to find the next multibagger.

I have ordered Antifragile by Taleb after reading Shane’s post and am pretty sure that it will change the way I think. Similar to what happened when I was through with another great book, Art of Thinking Clearly. 🙂

Have you read any of these books? If yes, please do share your understandings / wisdom in comments below.

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