The Destructive Force Of Fragility

Fragility in nature is a dangerous characteristic. 

Dinosaurs, for example, were large and powerful, but they still died off. Why? While there’s no shortage of theories about what led to their extinction, we do know the dinosaur’s inability to adapt and survive major shocks was a contributing factor that led to their extinction. One of the major lessons, among many, is that being large and powerful all by itself is not a guaranteed formula for survival or even thriving. 

In Nassim Taleb’s framework, things that are fragile are negatively impacted by disturbances. These disturbances include chaotic events, unpredictable shocks (Black Swans, or what I like to refer to as black pianos falling from the sky), and volatility. 

Fragile objects, by definition, are easily broken during periods of chaos. Think about how a delicate vase reacts during an earthquake. The vase is easily damaged with just one violent shake. It’s irrelevant how beautiful the vase looked before the earthquake or how long it took the artisan to design the vase. The vase falls victim to the destructive forces of being fragile

Getting back to dinosaurs, the extinction of certain creatures from nature provides ample evidence that fragility is a destructive force. Other fearsome species like the saber-toothed tiger and thylacine suffered a similar fate. For whatever reason, their fragility led to their permanent demise. In the context of a person’s investments, whether they be for retirement or another purpose, fragility is an acute threat to your financial well-being.

Fragile vs. Antifragile Investment Portfolios

At the opposite spectrum of “fragile” are things that resist the dangerous forces of fragility. We can describe these sort of objects or things as “antifragile.” 

The benefits of designing an anti-fragile investment portfolio are only appreciated when everything seems to be going wrong. Instead of breaking during times of massive chaos, massive volatility, and a multiplicity of disorder, the antifragile portfolio actually benefits. While the fragile portfolio is vulnerable to losses, the antifragile portfolio is poised for gains. (See image above).

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Disclosure: None

Disclaimer: Ron DeLegge has analyzed and graded more than $125 million with his Portfolio Report Card grading system. ...

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