I was able to attend a conference in Mexico City where Nassim
Taleb offered his views on antifragility among other topics.
Certainly, Taleb has a different way of seeing things as you may
have been able to hear and read. One of the ideas that left me
thinking during his presentation was the concept of "skin in the
game" and how it relates to simplicity.
Taleb mentioned that generally theorists and professors prefer
complex models because they have no "skin in the game," that is
they prefer complicated equations and theories to justify their
work and hours invested into it. However, Taleb argued that when
one has "skin in the game," that is, when we have positions backing
up our beliefs, we prefer simplicity over complexity, enabling us
to operate more fluidly as we follow our convictions.
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This idea has resonated with me and links right to Einstein's
simple yet powerful ideas from 1905. In a simple, yet revolutionary
paper that included at the most senior high school math, Einstein
shared his views on relativity by providing a solution based
primarily on the concept of time. It is to him that the phrase "If
you can't explain it simply, you don't understand it well enough"
In finance, it is very common to believe that complex models and
ideas are better: People still calculate betas and the optimal
portfolio weights according to the ideas of Harry Markowitz.
However, as we step away from the academic world and become
practicioners, often times a simple idea, like margin of safety,
has more power and provides more guidance than complex models.
The market is always complex, with many variables pulling in
different directions at the same time. It is my view that to
navigate during turbulent times, nothing is better than to observe
fundamentals, both at the macro and micro levels. One of the most
costly mistakes that we can make at the moment is to listen to
opinions and become victims of our emotions.
Focusing on what Taleb mentioned, these three basic steps could
make us arrive at better conclusions and even benefit from the
- What are the macro and micro fundmentals telling us at the
- Is your specific investment dependent on whether the U.K.
remains in the European Union? And if so, to what extent?
- Many quality companies have suffered downturns. If you have
been waiting for a good entry price, this could be a right time
to start building up a position.
This model is very simple; however, it can provide us certainty
to operate. Instead of building a complicated algorithm, the Pareto
law, that 80% of results stem from the initial 20% effort, can lead
to what behavioral finance callsAA satisfice, which provides
sufficient and satisfying results to maximize our time and reduce
our opportunity costs.
What do you think?
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