news-details
By Dhirendra Kumar

What is the opposite of fragile? That’s a question Nassim Nicholas Taleb always asks when he is talking about his book, Antifragile. The audience invariably responds with words like ‘strong’ or ‘robust’ or ‘unbreakable’. Then Taleb asks, ‘What is the opposite of positive?’ Almost always, people say, ‘negative’. ‘Why didn’t you say that the opposite of positive is zero? If the opposite of fragile is robust, then the opposite of positive should be zero.’ This needs further explanation.

If, as Taleb explains, you are shipping a glass object, you will write ‘handle carefully’ on the package. However, if you are shipping something made of iron, you won’t write anything, because an iron object is strong and robust, and unlikely to break if the package is dropped. That’s not the complete opposite of fragile. If your package contains something that is actually the opposite of fragile, you would write, ‘please mishandle’. If fragile things are considered to be those that are harmed by shock or adversity, then the opposite of fragile should be the things that benefit from shock or adversity.

At first glance, this seems absurd. While there are things that can resist shock, there can’t be anything that will actually benefit from it. However, once Taleb starts explaining, and you start thinking about what he is saying, you will realise that there are several things that are the true opposite of fragile.

When we skim headlines about equity investing, we get the impression that volatility is the worst thing for investors. In the past few months, the stock markets have been volatile and anchors of business TV channels have had long faces. The headline writers assume that since the equity markets are moving sharply, falling more than they are rising, it’s a bad time for investors. Surely, there must be investors for whom this is true. The crowds of punters, whose success or failure depends on correctly predicting what will happen from one day to the next, must be suffering.

However, is there any investment strategy for the ordinary saver that can help bring in the gains of equity investing, even as he gains from volatility? Is there an antifragile investing strategy that you and I can use?

Of course, there is. It’s something that smart mutual fund investors are already using. I’m referring to the systematic investment plans (SIPs). An SIP is based on the idea of averaging your investment cost over time. It’s the simplest and, yet, the most effective technique of benefitting from volatility. You invest a fixed amount every month and keep doing it for a long time.

When the markets drop, stock prices are low and so are the NAVs of equity mutual funds. Therefore, the sum you invest gets you more units of the fund. Eventually, when you redeem your money, all units fetch an equal amount. However, your gains are higher because of the volatile periods, when you were able to invest at a low price. That’s antifragile—actual benefit from volatility.

The SIP gains depend on long-term, gradual rise in equity prices, punctuated with periods of volatility or drop in the markets. It’s an antifragile investing strategy. You make more money precisely because the markets are volatile. If, hypothetically, the equity markets were to rise by a fixed amount every day, there would be no advantage in SIP investing.

SIPs are essentially a psychological trick to keep investing regularly, regardless of whether the markets are down or up. It’s the routine that locks investors into an inertia, which turns out to be beneficial for them. The antifragile nature is a hidden advantage that brings real benefit over time.

When one look at investing with this fragile-antifragile framework in mind, it’s immediately obvious that short-term trading of equities (or derivatives) is the ultimate in fragility, and long-term SIPs is the ultimate in antifragility.

(The writer is CEO, Value Research)

Related Posts