Nassim Nicholas Taleb: If An Investor Has A Risk Of Terminal Blowup, The “Potential Returns” Of His Strategy Are Totally Inconsequential

Johnny HopkinsNassim Taleb, Stock ScreenerLeave a Comment

Just been re-reading Nassim Taleb’s book – Antifragile: Things that Gain from Disorder, which includes a great passage on risk and a real-life example of how it applies in investing. Here’s an excerpt from the book:

Under path dependence, one can no longer separate growth in the economy from risks of recession, financial returns from risks of terminal losses, and “efficiency” from danger of accident. The notion of efficiency becomes quite meaningless on its own.

If a gambler [investor] has a risk of terminal blowup (losing back everything), the “potential returns” of his strategy are totally inconsequential. A few years ago, a university fellow boasted to me that their endowment fund was earning 20 percent or so, not realizing that these returns were associated with fragilities that would easily turn into catastrophic losses—sure enough, a bad year wiped out all these returns and endangered the university.

In other words, if something is fragile, its risk of breaking makes anything you do to improve it or make it “efficient” inconsequential unless you first reduce that risk of breaking. As Publilius Syrus wrote, nothing can be done both hastily and safely—almost nothing.

For all the latest news and podcasts, join our free newsletter here.

FREE Stock Screener

Don’t forget to check out our FREE Large Cap 1000 – Stock Screener, here at The Acquirer’s Multiple:


Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.