Two really great books that I highly recommend are Antifragile: Things that Gain from Disorder by Nassim Taleb and Essentialism: The Discipline Pursuit of Less by Greg McKeown.
I read Antifragile a little while ago but saw an article this week that I thought was worth passing on. It discusses how to live an antifragile life. It’s a good article and the concepts can can easily be applied to investing too. Here’s how Taleb describes being antifragile:
Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure, risk, and uncertainty. Yet, in spite of the ubiquity of the phenomenon, there is no word for the exact opposite of fragile. Let us call it antifragile. Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better. This property is behind everything that has changed with time: evolution, culture, ideas, revolutions, political systems, technological innovation, cultural and economic success, corporate survival, good recipes (say, chicken soup or steak tartare with a drop of cognac), the rise of cities, cultures, legal systems, equatorial forests, bacterial resistance … even our own existence as a species on this planet.
I’ve always found this an interesting way to think about investments. You can group your investments in different categories based on what type of risk would hurt them. And then think about what type of asset would actually benefit from that risk to counterbalance it. One example is CBOE Global Markets (CBOE). The more volatile the markets become, the more money they make. Another are the defense contractors which benefit during times of tension and war. But perhaps the most common example is how long-term Treasury bonds performed well in 2008 when almost everything else got hit. I bring up this specific example today because it’s how most of the investment world still views Treasury bonds but I’m not so sure that they will be the Antifragile asset class during the next economic downturn. Just something to think about.
The second book, Essentialism, is one of the only books I’ve read more than once. It’s fantastic. The key concept is to figure out what is absolutely essential and then just get rid of the rest. I’ve applied it to my personal life, my business and even how I think about investments within a portfolio. Macro conditions are always changing so I find this to be a good way to review your holdings to make sure the investment thesis is still valid. Go through each of your investment holdings and ask yourself if it is still one of your highest conviction positions. Or have things changed to where it is not as attractive? Or maybe it’s some idea you heard about a few months ago that sounded good at the time but is now just an afterthought? If it’s not essential, don’t use capital in an inefficient manner by owning it.
These are two concepts I always have in mind when thinking about investments so hopefully they will help you too (especially if you’re the type of investor that hangs on to losers for years and years even though the outlook has changed – if it’s not essential, cut it!). Here’s a link to Antifragile and a link to Essentialism if you’re looking for some good reads.
Thanks for following!
-Nick