Market price crashes

You’ve got to have skin in the game!

Below Ralph Hazell, CEO of gold investment platform The Real Asset Company, takes us through some of the main points he has drawn from Nassim Nicholas Taleb’s new book ‘ Antifragile: How to Live in a World We Don’t Understand‘ .

The Black Swan is one of my favourite all time books, I enjoy the way Taleb sees through the smoke and mirrors of the banking system and breaks down various myths on understanding risk. Thanks to this, I was looking forward to reading Anti fragile which I see as a refinement of Taleb’s theories discussed in The Black Swan. It’s safe to say I wasn’t disappointed by Anti fragile and have tried to distill his philosophy into a few core points.

  • Companies, governments, banks and individuals should not be too protected from risk. If they make a decision/prediction that turns out to be wrong, they must take the hit and suffer the consequences.
    • The more you are exposed to risks and adversity the more you stand to gain as you learn to handle difficult situations. Conversely if you try to protect banks (or people/companies…) from any volatility, they simply don’t evolve, and risk is therefore mis-priced (Greenspan put) and it just leads to an even bigger bust eventually (2008… 20??)
  • Risk taking is the only way to learn.
    • You cannot really understand a business or a situation by just reading about it (therefore, MBA’s are less valuable than the learnings of actually starting and running your own business, but good if you want a job in a bureaucratic enterprise) .
    • I believe that the appropriate level of risk, in a given situation, is something that you can only learn yourself through trial and error and a finely tuned judgement honed through first-hand experience. Take as many small risks as possible (maximum feedback loop) and just make sure no venture/exposure can blow you out and put you out of business.
  • The people at the top (which Taleb refers to as the Soviet Harvard elite, whether in corporate, banking or government) have engineered a free option on their careers.
    • They make predictions and place their bets (with other people’s money and lives) accordingly, if they get lucky with their predictions they win big and if not they rarely have any  personal loss. They have no skin in the game, their opinions can’t be trusted and they are “gaming” the system to the detriment of everyone else.
    • The people who “blew up” the financial system in 2008 are somehow seen now as experts in volatile times, and are therefore the right people to get us out of the mess that they created.
  • As a founder of several companies I appreciated Taleb’s belief that entrepreneurs are totally undervalued and should be at the top of the pile and bureaucrats (corporate/government etc.) should be at the bottom.
    • Entrepreneurs are always massively exposed to their business’ performance. They really do have skin in the game. Entrepreneurs and SME’s are not protected by an ignorant government agency and therefore have to roll with the punches and sink or swim. Many fail, but all of them are trying to innovate somehow. This is why SMEs in the UK employ over half of the workforce.
  • If you don’t have skin in the game then your opinions are irrelevant and useless. Taleb believes that in our modern economy and government there are too many people who are making hollow predictions and gambling with other people’s lives when they have nothing to lose if things go wrong, or worse, as seen in the banking sector.

These are my main learnings from my first reading of Antifragile which I highly recommend. I look forward to reading this book for a second or even third time and harvesting new insights.

 

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