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Author and mathematician Nassim Taleb formulated the term “antifragile” in his best-selling 2012 book to describe things that benefit from disorder. Antifragility is not just trying to survive the financial hurricanes, it’s about becoming better and stronger.
Systems that are antifragile are found throughout nature. However, humans seem to resist the concept and often make decisions based on models seeking to predict the future. This approach is fragile, not antifragile, because unforeseen events routinely enter the picture and make the models obsolete.
If you’re like many investors, you might be happy just to endure market downturns relatively unscathed, just so you can await the next financial upheaval. It doesn’t have to be that way.
The first step toward becoming antifragile is to adopt a long-term investing time horizon. The “most convenient” time frame for owning stocks based on long-term data is more than 10 years. An investing time horizon less than that relies a good deal on luck. That has the potential to make you fragile, not antifragile.
Dimensional founder David Booth says, “I believe that the key to successful investing is to cultivate a long-term perspective, where you think in decades, not days.”
Becoming antifragile means allowing less anxiety into your life. Anxiety causes you to think and act short-term. That’s often where missteps occur. How well you deal with stress and uncertainty are the keys to becoming antifragile.
There are four primary components that make up human behavior: doing, feeling, thinking, and physiology. You have total control over a couple of these, (doing and thinking), but you don’t have much control over feeling or physiology.
Becoming antifragile means spending less time worrying about things you can’t control, while spending more time focusing on the things you can control.
In a world filled to the brim with data, it’s important to realize that even with all of this data, your financial decision making is always made with imperfect and incomplete information. No amount of fretting or worry will make your decision making perfect.
Since 1926, the S&P 500 return has averaged around 10% per year. During this almost century long time frame, the stock market has been positive in 72 of these years. There were also 6 years where declines were more than 20%. Investing is about probabilities more than possibilities and once you’re comfortable with this you’re on the way to becoming anti fragile.
Even if you’re antifragile, bad things can happen. No one is exempt from poor decisions or just random bad luck. The distinction, however, between being fragile and antifragile is primarily in the way that you respond to risk.
Financially fragile investors count on everything going according to plan. To become antifragile, you have to understand the role of uncertainty and build a margin of error into your plans.
The lessons of the year just past should serve as an instant example of the folly of relying on “fragile forecasts” as your financial decision making guide. No one knows exactly how the future will unfold, but with the right time horizon and mindset, you can become not just a survivor, but actually become antifragile.
Related: Why Investors Love Forecasts