Antifragility in Life and Investing
In my free time, I like exploring archaeology. I’ve come across something intriguing.
Ancient skulls often reveal flawless teeth and robust jaw structures.
This might seem surprising.
Considering that for nearly all of human history, toothbrushes, braces, or orthodontic surgeons removing wisdom teeth did not exist.
So, what explains the impressive dental health of ancient peoples?
A large part of the explanation lies in how their jaws were exercised.
Biting into bones, chewing cartilage, and gnawing on roots from childhood.
These activities introduce mild stresses that stimulate the jaw and teeth to develop strong and large.
In contrast, nowadays, children often eat softened or pureed foods, resulting in underdeveloped jaws and crowded teeth. This partly explains why wisdom tooth removal is so common today.
Refer to the image below.
The skull on the left belongs to an ancient Japanese hunter-gatherer, while the one on the right is from a more recent Japanese farmer.
This contrast is striking, yet the pattern holds across much of the fossil record: hunter-gatherers, due to their lifestyle, had significantly stronger jaws and teeth than modern humans.
You might wonder how this relates to investing—bear with me for a moment…
Good Stresses
A decade ago, I read Nassim Taleb’s influential book Antifragile.
It shifted my outlook more than most other books.
Taleb describes how volatility and stress can actually be beneficial.
An entity is antifragile if it gains from disorder and chaos.
In many respects, our bodies demonstrate antifragility.
For instance, astronauts in zero gravity experience insufficient stress on their bones. This causes weakening, requiring them to apply artificial stress to prevent further deterioration.
Despite specialized equipment, astronauts can only stay in space for limited periods before losing bone and muscle mass.
Taleb also notes that indoor-grown trees lack enough wind stress, so when moved outdoors they tend to break easily.
Without certain stresses, living organisms cannot reach their full strength.
These concepts extend well into investing as well.
Building an Antifragile Portfolio
Regular readers can probably anticipate my point.
Precious metals (PMs) rank among my preferred antifragile investments.
The more turmoil unfolds, the better these assets perform. They prosper in chaotic situations. Though some might point to gold and silver’s recent decline amid the Iran war and claim “it’s not working”.
While both metals have dropped since the conflict began, it’s essential to consider their long-term trends.
Since 2000, gold has averaged roughly 10% annual returns. Silver, despite its recent stumble, has nearly tripled since hovering around $20 in 2023. Such performance is impressive for so-called “safe haven” assets, though they won’t always deliver optimal results at every moment.
Gold and silver simply experienced a correction after getting ahead recently, before the bull market continues.
Durable Catalysts
The market pressures we’re facing now seem unlikely to resolve soon.
For the first time in decades, inflation challenges are affecting “developed” nations. Trade conflicts are reshaping global commerce, and we witness modern warfare unfolding in Ukraine and Iran.
Additionally, many countries, notably the U.S. and Japan, are nearing critical points with their debt and deficits.
Eventually, central banks and governments around the globe will respond with large-scale money printing.
This means maintaining an antifragile investment approach will stay vital in the near future.
Other Hard Assets
In general, it’s essential for investors to hold hard assets. The S&P 500 has performed exceptionally well over the past 15 years.
However, the top seven tech giants now represent a massive 37% of the S&P 500.
Exposure to oil and other natural resource companies is scarce in major indexes today. Therefore, investors need to actively pursue industrial metal miners like Vale and BHP, as well as reliable oil firms like Exxon, or more speculative options such as Petrobras.
During a sustained stagflation period, relying solely on tech stocks won’t suffice.
Hard assets remain a cornerstone of my portfolio, and this current downturn presents a valuable buying chance.
What Else is Antifragile?
A major potential “black swan” risk is a serious decline in the dollar. Those lacking foreign stock or precious metal holdings could lose significant wealth in such a scenario.
This partly explains why I invest in emerging market stocks. If the dollar collapses, owning overseas equities will be a major advantage. Plus, many of these stocks are attractively priced with strong dividend yields.
I believe American investors should allocate a reasonable portion of assets to foreign stocks, especially in emerging markets. Why emerging markets? Because other developed regions like the EU face challenges similar to the U.S., including de-industrialization, political decline, and excessive debt.
For me, emerging markets form a crucial element of an antifragile portfolio.
I’m not suggesting abandoning traditional assets, but now is a good moment to consider diversifying into more antifragile investments.
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