Partner Center Find a Broker


“War against a foreign country only happens when the moneyed classes think they are going to profit from it.”

George Orwell

Commentary & Analysis

Taleb knows Fragile. And we are fragile.

I’ve read Nassim Taleb’s investment books. Over the years I have watched Taleb emerge into the public eye and share investment pronouncements. At a time, when he admittedly became “oversaturated” on TV, I had my doubts about him. [His call for almost “guaranteed hyperinflation” when the Fed started QE was quite amateurish given the powerful deflationary forces across the global economy—though the jury is still out.] My view of him wasn’t helped when he became synonymous with the phrase “Black Swan” because of his so named book everyone ask me if I copied him. I didn’t. My firm was named Black Swan Capital many years before his book was released; so maybe petty jealousy played a role in my view of Nassim. But my opinion of him changed completely after reading his latest book, a few months ago, Antifragile: Things that Gain from Disorder.

In my humble opinion the book is brilliant and establishes Taleb as one of the few grey-haired (though balding) deep thinkers out there whose original work adds to the debate

The following quote from Sir Karl Popper appears on our website…

“It thus leads, almost by necessity, to the realization that our attempts to see and to find the truth are not final, but open to improvement; that our knowledge, our doctrine, is conjectural; that it consists of guesses, of hypothesis, rather than of final and certain truths; and that criticism and critical discussion are our only means of getting nearer to the truth.”

…I think in his latest book Taleb exemplifies this philosophy and would have made Popper proud. There are others…

My short list of deep-thinkers still with us to share their market ideas and add to the debate includes: George Soros, Jeremy Grantham, Robert Prechter, John Percival, Jim Rogers, Felix Zulauf, Lacy Hunt, and Criton Zoakos. I am sure I am missing a few…apologies. [An honorable mention goes to my gold-bug and naked options expert father in law; family relations and all that..]

I think it’s a particularly good time to share some excerpts from Taleb’s book and my additional comments in context of the US debt debacle/shutdown/political/QE morass.

Taleb: Life is more, a lot more, labyrinthine than shown in our memory—our minds are in the business of turning history into something smooth and linear, which makes us underestimate randomness. But when we see it, we fear it and overreact. Because of this fear and thirst for order, some human systems, by disrupting the invisible or not so visible logic of things, tend to be exposed to harm from Black Swans and almost never get any benefit. You get pseudo order when you seek order: you only get a measure of order and control when you embrace randomness.

Me: This quote makes think of the maxim from the Austrian School of Economics—let the market clear away malinvestment. Random bad events (seen as “bad” by those humans constantly desiring order) such as allowing inefficient firms and structures go bankrupt is the market’s way for allowing new fresh growth that is sustainable and collectively beneficial to all. Saving legacy assets to feign stability actually makes the system weaker and continuously prone to shocks.

Taleb: We have the illusion that the world functions thanks to programmed design, university research, and bureaucratic funding, but there is compelling—very compelling—evidence to show that this is an illusion, the illusion I call lecturing birds how to fly. Technology is the result of antifragility, exploited by risk-takers in the form of tinkering and trial and error, with nerd-driven design confined to the backstage. Engineers and tinkerers develop things while history books are written by academics; we will have to refine historical interpretations of growth, innovation, and many such things.

Me: This quote hits home for me. About 32-years ago I had an economics professor who would continually repeat this mantra: “There’s the invisible hand of the market and the government boot of the market.” Brilliant in its simplicity…this quote comes from Professor Dick Armey, later to become majority leader in the US House of Representatives. He was my favorite professor of all time and taught me much about the market and turned me on to the Austrian School greats: Menger, Bohm-Bawerk, and Mises.

Taleb: Our idea is to avoid interference with things we don’t understand. Well, some people are prone to the opposite. The fragilista belongs to that category of persons who are usually in suit and tie, often on Friday’s: he faces your jokes with icy solemnity, and tends to develop back problems early in life from sitting at a desk, riding airplanes, and studying newspapers. He is often involved in a strange ritual, something commonly called “a meeting.” Now, in addition to these traits, he defaults to thinking that what he doesn’t see is not there, or what he does not understand does not exist. At the core, he tends to mistake the unknown for the nonexistent.

The fragilista falls for the Soviet-Harvard delusion, the (unscientific) overestimation of the reach of scientific knowledge. Because of such delusion, he is what is called a naïve rationalist, a rationalizer, or sometimes just a rationalist, in the sense that he believes that the reasons behind things are automatically accessible to him. And let us not confuse rationalizing with rational—the two are almost exact opposites. Outside of physics, and generally in complex domains, the reasons behind things have had a tendency to make themselves less obvious to us, and even less to the fragilista. This property of natural things not to advertise themselves in a user’s manual is, alas, not much of a hindrance: some fragilistas will get together to write the user’s manual themselves, thanks to their definition of “science.”

Me: Wow, there is so much in that quote—the know-it-all academic, the cold ugly face of the Washington bureaucrat, the smug leftists and their historical revisionism, the country club crony-capitalist and the fund manager who confuses brains for a bull market. The Soviet-Harvard delusion is a brilliant representation of our system that has become calcified (extremely fragile) in so many ways—debt, welfare spending, regulation, political correctness, campus speech code, trade deals, and quantitative easing as the ultimate elixir to suspend reality.

Watching what happened at WalMart yesterday, when the welfare cards went to zero because of the government shut-down glitch, I think is telling of a corrupt fragile system. It highlights the flaw in the haughty urban dwellers thinking about those hicks in the hinterland always talking about safe-havens and “clinging” to guns to protect themselves. Multiply a real shock to our fragile system by 10,000 WalMarts yesterday and said urban dwellers may think those hicks ain’t so crazy after all. Reality meets fragilista!

[Click here to listen to an excellent recent interview with Nassim Taleb and John Authers of the Financial Times. There is part I and Part II. In this interview Taleb explains why he believes the US debt structure is the most fragile system of them all.]

Thank you Mr. Taleb.