Fractal Press

I find that plenty of readers who agree with the arguments presented in The Black Swan by Nassim Taleb find themselves at a loss as to how they should apply the principles outside of Hedge Funds, Venture Capital and options trading. “What should a young person do?” they ask. This is an attempt at connecting the dots and coming up with concrete steps that younger readers can take to apply TBS principles in their lives. This is for people who already sort of agree with Taleb’s arguments, so this is not a place to question those central tenets.

Consequences

The following question is your friend:

What is the worst that can happen?

Every time you are acting under uncertainty, you want to ask yourself this question. The question needs to be considered deeply to see its full implications. Too often I see people who nod in total agreement and continue to do the following:

1. Not talk to strangers at parties
2. Continue to invest in single stocks, mostly through their employer ESPP program

Let’s apply The Question to the two actions above. In the first case, talking to strangers at parties, the worst that can happen is you feeling embarrassed and find yourself cringing for the rest of the party. Yes that’s a cost, but it’s limited, well understood, and you’ll survive to play another day. In the second case, you could lose all your money.

If you subscribe to Taleb’s idea of ranking actions and decision-making based on consequences, then there is plenty for a young person to do once they internalize the ideas. I would start with reversing the two actions above.

Take as many clipped, well understood risks as you can. The concrete takeaways from this are:

1. Meet as many people as you can
2. Travel
3. Diversify your interests - be a fox instead of a hedgehog
4. Learn multiple languages

Invest in Preparation

Invest in preparation instead of forecasting. Play around with scenarios, “what ifs,” and counter-factuals. Concrete takeaways in addition to the ones discussed above include:

1. Create an “emergency fund” of liquid assets
2. Learn basic first-aid
3. Do not get too habituated to coffee or anything else that will effect your well-being if taken away
4. Exercise and focus on fitness
5. Get to know the staff and administrators as well as the big-shots

Many of the steps outlines in the “consequences” section also apply here.

Making Money

The model that I always keep in mind is that of the “Dentist who writes novels on weekends.”

This involves creating a “floor” or baseline income and then getting exposure to long-shots. There are plenty of ways to do this. If you’re in school or a regular job you could:

1. Write novels or other books on the weekends
2. Build a technology startup
3. Build a website/blog and spread your ideas
4. Start consulting and making contacts on the side
5. Paint
6. Create a short film

Make plenty of these small attempts with potentially large upside. Focus on making a large number of small bets. This means creating things that don’t take a lot of money or a lot of time. Create something, test it on the market (send it to a handful of publishers, art dealers, etc), and quickly move on to a new attempt if it doesn’t succeed. If something does start picking up steam, focus all your energy on that and take it as far as it will go.

Notice the tradeoff between Searching and Acting above. Constantly strive to diversify your exposure to chance events

If you want to start a business, be aware of the difference between positively-skewed business and negatively-skewed ones.

Volatility and Stability

This is a rephrasing of some of the arguments above, but it brings a new perspective. Seek out controlled volatility in mediocristan domains. An overprotected child will grow up with a weaker immune system. Strive to build exposure to events that put you outside your comfort zone. This will make you vastly more prepared for unexpected shocks.

On the flip side, be wary of overly stable environments. They are vulnerable to unexpected shocks simply because they haven’t had the opportunity to learn from them in the first place.

To give a practical example: I would rather be a passenger in a car with a driver who’s been in a few small accidents than with a driver who’s never had an accident at all. The former is less liable to panic and more tuned to how things work (insurance, ambulance number etc.) when an accident does happen.

Another example: Someone who goes skiing and has to have multiple visits to the doctor every year because of the frequent falls is likely to detect an unexpected tumor early simply because of the number of scans he’s put through. On the other hand, someone who leads a very safe life and boasts that they haven’t required a checkup in years may find the tumor vastly advanced before it necessitates a visit to the hospital. The latter is more vulnerable to the unexpected.

Conclusion

These are only some of the takeaways that The Black Swan presents that are highly applicable to young people and those outside the domains of finance and wealth. A little introspection and attempts to internalize the concepts will result in even more.

I write about these topics and related ones at my personal site as well: http://navanitarakeri.com

Thanks for reading