How to Create an Antifragile 'Barbell' Strategy for Almost Anything
A detailed blueprint for creating barbell strategies
The components of a barbell strategy
Now we’re ready to get into more detail about what goes on each of the two sides of the barbell. We use an acronym, ‘gas pump’. It stands for:
Guarantees
Automation
Simplifying
Pollinate
Uberise (platform)
Margin
Portfolio
We’ll explain this shorthand in the coming paragraphs. But here’s what we’re focusing on right now: How to take a domain of life and make it antifragile
Firstly, define the downside(s) and find ways to reduce or remove it/them.
This is 90% of the task of becoming antifragile. Once you have this side of the barbell in place, you are ‘robust’. The main categories here are the first three in our acronym above, namely a) guarantees/insurances; b) automation; c) simplification. These three categories will not always be available, depending on the domain of life you’re reflecting upon. One of the commonest ways to insure is to build significant margin – usually three times more than what you think you would need. Automation is concerned with removing reliance on willpower, remembering to do something, or quality of decision making in a given moment. Simplification makes you more robust for this simple reason: simple things don’t break because they can’t break. In other words, simple things have ‘fewer moving parts’; logically speaking, there is simply less that can go wrong.
As an example, let’s imagine that you’re wanting to develop an antifragile approach to your personal finance. Before we think about ‘how to gain from unpredictability’ (antifragility – one side of the barbell), we’ll focus on ‘how not to lose from unpredictability’ (robustness – the first side of the barbell):
Guarantees/insurances: whilst formal insurances belong under this category, like life insurance, home insurance, car insurance, and income insurance, we would insist on high cash margin as a form of universal self-insurance. In other words, the simplest way to robust and antifragile finances is to begin with a sizeable cash margin. This is because, with a large margin, you can both a) absorb unpleasant surprises and b) be in a position to pounce on a good opportunity when one comes along out of the blue. Note that this is extremely boring as a first answer; but much of true antifragility comes from a mundane foundation of robustness. ‘To win you must first of all survive’.
Automation: in personal finance, this relates to setting up a wise plan and then setting up a way for it to happen without you needing to remember and do it. For instance, set up automatic regular payments into a separate account where you’ll hold cash margin. Automatic payments into a pension plan, etc. In addition, automation happens at the level of ‘rules’ which you decide upon, write down, and then follow. This is particularly important in investing; rather than variable emotions dictating what to buy, what to sell, and when you have clear rules governing how much of what kind of asset to buy, and to sell at what price. So that in theory you could hand the whole set to someone else to run your portfolio for you for a year and get the same results.
Simplify: What are those rules? Keep them simple and they’ll endure. Complicate and it will fall apart. As a rule of thumb, you should be able to remember the principles without ‘trying’ to learn them in the first place. And, you should be able to write them down on the back of a napkin or envelope. Imagine that you got chatting about an area of life in a coffee shop with a friend. If you can write down your governing principles in note form there and then on a coffee shop paper napkin, you know that they’re clear, simple, and robust.
You might choose to do things differently, but – for precision and clarity – here are our actual personal finance rules:
Pay money automatically into investment account (trading account/pension etc) each month
Every 6 months, rebalance according to this proportion:
90% of total in cash and super-safe investment vehicles (75% cash, 15% Government bonds/Treasury bills)
10% of total in super-aggressive investment vehicles (7% stocks, 1.5% commodities, 1.5% gold)
For aggressive investment vehicles, set a stop loss order at point of purchase, to sell all if it drops 25%. Also set a sell order to sell 25% of holdings if it rises by 25%.
Second, create structures which allow you to capture upsides
Now let’s think about the ‘antifragile’ side of the barbell. Our categories for this ‘capture the upside’ angle are: a) portfolio, b) uberise/platform, c) margin, d) pollinate. Here’s what we mean:
‘Portfolio’ means finding ways to enable units to function independently of each other. Create self-contained units or a network. So, in the personal finance domain, rather than all your wealth bound up in one thing (e.g., your family home), aim at dispersion across different units which can independently succeed or fail. If all your money is in the house, but you can’t sell, or have to sell in a hurry and at a loss, then what? There’s a profound difference between $100,000 tied up in one thing, and $100 spread across 1,000 things.
‘Platform’ means creating a structure within which unpredictable and uncontrollable interactions can happen, where you will benefit regardless. If you can create or own a platform, you basically have antifragility by design. Examples of this are easy; the London Stock Exchange makes money anytime someone buys or sells; so does Amazon or Ebay. However, you can capitalise on platform dynamics without needing to create a huge multi-national online institution. A platform is simply a structure within which value can be realised and captured. It is a safe place for chaos and de-centralisation to happen and to be benefited from. So, when it comes to our example of personal financial antifragility, the ‘platform’ heuristic lets us think of creating our own marketplaces, creating contexts for communities to form. Platforms are essentially about giving you options.
Margin. Margin actually functions in both hyper-conservative and hyper-aggressive ways. This is why, in fact, the very simplest and quickest route to antifragility is to identify how to build margin and then, build that margin. On the hyper-conservative side of the barbell, as we’ve seen, margin buffers loss, negative events, etc. On the hyper-aggressive side of the barbell, margin enables you to pounce on opportunities. So, when a negative black swan comes along, margin protects you. When a positive black swan presents itself, margin helps you participate in it quickly. In the finance domain, margin simply equates to cash in hand; cash in hand means you can tolerate a sudden crisis. If person A has $500 in the bank along with a portfolio of properties worth $500,000, and person B has $5000 in the bank and one property worth $75,000, person B is actually more antifragile, while person A is more fragile. Person A will suddenly be in crisis if an unexpected bill lands on his/her door; they will not easily be able to free up cash quickly from the properties.
Margin takes many forms, along with cash, in different domains. ‘Time’ is another hugely powerful form of margin (also called ‘redundancy’). People who are ‘time rich’ can, on the one hand, accommodate delays and crises in their lives easily – whilst also being able easily to ‘drop everything’ and focus on something useful, important, or profitable which crops up. In organisational leadership, staffing margin counts – having more staff and talent than you ‘need’, and ensuring they are never stretched to capacity, precisely so that the organisation can sail through crises, and also pounce on opportunities. In relational terms, margin equates to the number of positive relationships one has – your network. If person A is a bachelor who has worked all his life for a company, and has few wider connections or friends, and then is made redundant along with person B, but person B has a loving family, a loving church support network, and over 1000 professional connections through LinkedIn; you can easily tell who has a deep well to draw upon and who doesn’t. Note that your network provides both emotional support and meaning (the hyper-conservative function of margin) as well as new opportunities (the hyper-aggressive function of margin).
Finally, pollinate. This concept sums up the way new ideas and initiatives come to life. Pursuing new things, new ideas, new people is summed up by our term ‘pollination’ here. This is why networking is an antifragile thing, since on a long enough time scale you will connect with someone in a way which is tremendously valuable, positive, and transformative. This is why continually reading new books and grasping new ideas is antifragile, since on a long enough time scale you’ll absorb an idea which is tremendously enriching. And note that with these ‘pollinating’ dynamics, there isn’t really such a thing as a downside; networking, learning, and following curiosity are inherently antifragile. You might meet someone and it might appear to be a bit of a waste of time, or you might read a book which appears not to teach you anything new. But in either case, no actual harm has been done. Plus, there is the potential for a dormant benefit; maybe a year down the line you have a reason to email that person you’d met, because there’s a way you could be of mutual help to each other. Or, you remember a chapter in the book that would really help you right now if you got it down from the shelf.
So there we have it, a detailed breakdown of the components of a barbell strategy. Remember that you need both sides of the barbell to be antifragile; the hyper-conservative strategies on their own will make you robust (the necessary precondition for antifragility). But you need the hyper-aggressive side to enable you really to win from uncertainty. Let’s conclude by repeating that, unlike a weightlifting barbell, an antifragile barbell is not equally weighted. In fact, it’s vastly asymmetrical. It’s 90% hyper-conservative, 10% hyper-aggressive.