The opposite of fragile is not robust

The stock markets are blowing hot and cold, to say the least these days. But since I have concluded, on perfectly scientific grounds, that in the short term it is impossible to read anything into the erratic movements of the stock market, I would rather talk about a book I recently read that is NOT about the stock market (in fact, not specifically). The title of the book is 'Antifragile'. The basic concept of this little tome, by the author of 'Black Swans', is to say that robustness is sometimes a useful thing, but is useless when the headwind is too strong. What is useful conceptually is being able to profit from adversity.

A bit theoretical and inapplicable? I grant you that at first glance. But by taking examples, everything becomes clear. Nature is perhaps the best provider of examples: we know from space travel that bones decalcify when subjected to weightlessness. Gravity in this logic is a form of 'stress' (or adversity, or pressure, whatever the terms). Which clearly shows that a bone benefits from a form of stress without which it wastes away. In an example closer to the world of economics, we only have to think of these companies that on the brink of the abyss (or advancing towards it in small steps...) have made unexpected and unhoped-for turnarounds (IBM in the 90s; GM recently). Without the threat of an inevitable end, these organizations would not have managed to turn around. And, more importantly, they have set up a system that allows them to react and benefit from an environment that is not supportive (it is true, sometimes also because the weakest disappear first). In the world of work, a final interesting example cited by Taleb: it is the employee, and not the independent who has the most fragile situation, because if he loses his job, he loses everything. The independent has multiple strings to his bow, is used to the stress of looking for mandates and adaptation is part of his DNA.

But what does this mean for us in the world of investment? How can we take advantage of the observation that 'what doesn't kill you makes you stronger' (Nietzsche)?

On several levels first in my opinion. Any company whose management has proven not only resilience but also the ability to take advantage (by larger market shares, better profitability, cost cutting, etc.) of adverse situations should be seriously considered for investment. Of course, it may or may not pay dividends, but I want to say that companies that succeed in taking advantage of adversity pay 'implicit' dividends by increasing (and therefore positively influencing their stock price). It is obviously even better if these companies pay dividends (increasing...).

But 'Antifragility' (Taleb reminds us that there is no word for the concept) is the definition of success for the companies that have been rewarding their shareholders for so long: they are not so much robust as they are 'antifragile', they have the ability to make money whether the coin lands heads or tails, by not only playing circumstances, but taking advantage of them.

Antifragile: Things That Gain From Disorder is a book by Nassim Nicholas Taleb published in November 2012 by Random House in the United States and Penguin in the United Kingdom.