This is the third and final part of our series of articles about dynamic risk management. Part 1 made the case that the difference between static and dynamic risk management is the difference that makes all the difference. The only kind of risk management that counts in the real world is dynamic, on the fly, real-time decisions. Part 2 started then to build a ‘frame’ for antifragile dynamic risk management. In this article we will finish building this frame and run some real-life examples.
To recap the steps from part 2:
Step 1: be the creator, not the consumer. I.e., take deliberate known risks.
Step 2: know what you don’t know. I.e., build decisions around what you don’t know, not what you know.
Step 3: Know how to execute and respond in real time. I.e., establish rules in advance.
And now a delightfully simple final step:
Step 4: tinker aggressively. All this means is, keep repeating the cycle deliberately, getting as much feedback as you can from small time cycles. The goal here is to build a bigger map of step 2, and improve (simplify) the rules in step 3.
Now for some examples. Firstly, to flesh out step 1. What does it mean to be the ‘creator not the consumer’? It means things like this:
Become the athlete, not the spectator
Become the artist, not the critic
Become the writer, not the reader
Become the editor, not the writer
Become the publisher, not the writer
Become the investor, not the spender
Become the seller, not the buyer
Become the attacker, not the defender
Become the player, not the listener
Become the entrepreneur, not the employee
Look over this list. Add your examples. Note how the first role takes obvious risks; it’s why these roles are scary for many. But note how the second role takes less obvious risks; risks which are forced upon them whether they know it or not. Risks which they often have very little control over. Once we realise this, we find that this paradigm applies well in relational and emotional domains too:
Become the parent, not the child
Be the coach, not the hero
Be the challenger, not the critic
To explain each of those: whether you are literally a parent or not, you can choose to be the one in an interaction taking responsibility rather than claiming entitlement or victimhood. Rather than being a hero, whose identity needs success and victory, you can be the coach, who chooses to focus on learning and empowering others rather than necessarily tangible success. And whereas a critic assigns blame to others, the challenger is raising questions in the hope of nudging others towards greater wisdom and maturity.
Enough on the distinction. What about actual execution rules (step 3)? For a start, we have an upcoming series focused on antifragile investing, which will dive deeply into such rules within the domain of finance and investing. The fantastic thing about learning to trade and invest is that you end up learning the principles of risk taking in general, with applications everywhere. Look out for the first in that series coming soon.
Photo by Jametlene Reskp on Unsplash