So with this rule you can tell yourself

the following. Why is social media

successful?

Because it's a destructive technology

that removed the old unnatural

technology. The television

the television you're sitting down what

on oneway relationship with with you

know no discussion. People are

argumentative before that what did they

do? Use the existing business line you

have to introduce other thing. It's very

hard. People don't realize how hard it

is to switch business

because you have a business plan. Once

you have a business plan, you're married

to that business plan. You're ashamed of

changing course. People searching. I

mean, Columbus was going to India. He

discovered the Americas. They still were

in denial, right? The Phoenicians had

zero resources. They were the wealthiest

people in the Mediterranean for a

thousand years.

The whole idea is to be prepared to have

a system to not to have to worry about

black swans, not to have to predict the

environment, but be set up in a way to

benefit from the unpredictability of the

environment. And a lot of companies have

this attribute and a lot of systems have

this attribute. For 21 years, I was an

option trader and I picked up everything

I know from option trading.

And when you're an option trader, you

don't know a lot of things. Honestly,

your your knowledge is very limited. You

don't read the papers because it's

useless. You discover quickly it's

useless. You know, one thing

professionally, volatility.

And you know, one thing outside of that

is alcohol.

So when I stopped trading, you know, I

wanted to have a specialty. I could not

specialize in alcohol because I wasn't

good, you know, at it too much. Like my

friends could drink a lot more than I

did. So I focused on volatility, trying

to model volatility mathematically. So I

started trying to develop models of

volatility and it hit me that in the

process accidentally that everything all

right can be seen as how things respond

to volatility

everything. So the fragile for example

like this coffee cup made in China but

real you know the the highest quality

does not like volatility.

Everything fragile has this in common.

This commonality. In the process of

understanding fragility, we option

traders had a term for things that like

volatility. We called it, you know, long

gamma. And it was not in the literature.

It was not in the vocabulary. Because

when you ask people what's the opposite

of fragile,

they tell you solid, robust, someone

from New York or Brooklyn. All right?

They I mean they don't give you the

characterization I'm looking for because

the opposite of a package on which is

written you know please handle with

care. It should be written please

mishandle. Okay that's the exact

opposite. You see the opposite of

fragile is not solid. It's not robust.

It's not I hate that term resilient. It

is something that likes disorder and

volatility.

The Greeks had a concept of it. You know

about the fragile. You're sitting down

with a sword above your head waiting for

the sword to fall and you can do

absolutely nothing about it. Like the

coffee cup, one day it's going to break.

You can't do anything about it. Fragile

companies, fragile bridges one day will

collapse. You can't do anything about

it. Okay, that's a fragile. Okay, cannot

handle a certain amount of disorder,

unpredictability.

in the middle. The resilient

like Phoenix. You shoot it, it comes

back. Shoot it, doesn't degrade, doesn't

improve. Like people from New York

again. Okay.

And to the right you have hydra.

You cut one head. Guess what? Two grow

back. So really it feeds on attempt to

harm it. Okay. So there are a lot of

hydraike things in life. And let's look

at how they react to volatility to see

the hydra attribute. The fragile is like

a bank.

They make money. They make money. They

make money. They make money. And then

one day you got a phone call. All right?

They didn't make money. When they lose,

they lose a lot.

They lose more than they ever made

before. Hedge funds, a lot of them have

this attribute. Okay? Uh companies after

they become mature have this attribute.

They make steady income and then one day

you get a phone call, right? This is the

fragile

and uh

it doesn't like volatility. All the big

variations of downside the robust as I

said people from Brooklyn. Okay. No

upside but no downside. All right. And

then I have actually a character of Fat

Tony from Brooklyn and antifragile.

And then you'll see exactly what I mean

once you read about Fat Tony. Okay. And

then the anti-fragile most of the big

shocks are to the upside. Okay, think of

a venture capital P&L. Okay, long

volatility, long optionality, right? So

this is how it looks in time series

space.

They and let's look at it in a different

dimension.

It's a little complicated to explain,

but I've written about 200 technical

pages on it. I still try, you know, I'm

trying to figure out exactly. And

Duridge had a conversation and tell me

it takes a lifetime for that. Is that if

you like one of these, you like them

all. And if you hate one of these, you

hate them all. Okay? And this makes it

easy. If you like time, you like

volatility. If you don't like

volatility, you don't like time. Time

brings volatility.

But what they all have in common is that

they have more upside than downside when

they're antifragile. And the antifragile

likes them all up to a point of course.

And you have more downside than upside

when you're fragile.

And my body is fragile. It has one

attribute. It doesn't like earthquakes.

Okay? It doesn't like time. It doesn't

become more accidents. So this is

you know what I I call the disorder

brother. It's not a moving company. It's

a you know characterization.

And with this we can do quite a bit. And

I learned it from being an option

trader. If you don't like volatility,

the market goes down 1%.

Okay, you lose a million. The market

goes down 5%, you lose 20 million, not

five. You have an accelerated negative

P&L. And this is how we can measure,

you know, more downside than upside.

This is how we can measure this

asymmetry. This is how we can measure

really the degree of fragility in a

system. Now

you know as we say in America when life

gives you a lemon you make lemonade. So

you have two approaches in life.

If you read too much of the economist

the New York Time all these as junk all

right you have the idea that vfully is

bad. But in fact if you have the idea

hey we're going to have high winds what

do you do that they necessarily have to

go duck in your basement. Okay. With

spam, some movies, you know, uh candles,

maybe guns. No, you know, if you hear

you're going to have high winds, let's

try to make some money out of it. Okay.

So, hence you can have you can have

windmills, build windmills, try to make

money out of turmoil. My profession

incidentally for 21 years was trying to

benefit from turmoil. Okay, I mean it's

maybe not a very interesting profession

but but you can translate it into real

terms. Let's be set up in a way to

benefit from disorder bad events from

the bad from the you know attempts by

life to give you lemons.

So

but you say how look at your bone you

know we have all bones your bones

improve if you shock them. And actually,

not only that, but if you don't stress

your bones, guess what happened? You

lose in bone density. Actually, people

who go to gyms don't stress their bones

and they lose in bone density. The

oldfashioned way of carrying water jugs

on your head is still the best if you

want to have a good bone structure and

actually even regulates the hormonal

structure, even fertility.

So it's not just you know uh business

life it's your bone it's your body you

have there's a gym here I think okay now

let's look at the mechanism of

overcompensation

a lot of things not only benefit from

bad events

but need bad events because they

overcompensate by shooting higher just

like your bone gets stronger up to a

point of course if I put 500 lb on my

shoulder you know it' be okay my bones

would get stronger £5,000, you need

another speaker. All right. Okay.

Because All right. So, you know what

happens? It's the same thing with, you

know, and now I looked at history and

discovered one thing. I know a little

bit of the eastern Mediterranean

seabboard. And then you look at the uh

Phoenicians.

The Phoenicians had zero resources. They

were the wealthiest people in the

Mediterranean for a thousand years.

For a thousand years. Okay. They had

absolutely zero, nothing, nothing

nothing to speak of. It so happened that

during after the Bronze Age,

the island of Cyprus nearby

had copper. They had no copper. They had

no resources. So someone with his

cousins went to get some copper.

Guess what? When you go get copper from

Cyprus,

you need to build boats. No, you learn

to navigate. You learn to go to Cyprus.

So they got a little more copper and in

no time they became a maritime

network

of buying copper from Cyprus, buying

other things from the Criathos, buying

other things from other people and then

of course they became the wealthiest

nation on zero resources. Nothing. They

had absolutely nothing. The the

Venetians, same story. The modern

equivalent is Singapore. These guys have

nothing.

Look in reverse. Saudi Arabia exact

opposite. They have everything. And

guess what?

They're going nowhere. With all of that,

they're going nowhere. So here you see

that overcompensation is a mechanism by

which economies also work.

You see stressors are good. And here's

your industry post and pre.com of 2000.

Aha.

Before

2000,

everything was bad compared to what it

is today. Everything improved today from

that event. So really we humans are a

have a mechanism by which we

overcompensate

and we can only act by overcompensating.

Actually your bones are not going to get

strong by on their own.

So with this we realize that companies

not only need like volatility but they

need it they need certain dose not too

much not too little

which brings me to the concept of

optionality

again I started with telling you my

secret I was an option trader when I go

to literary festivals I don't tell them

because they're associated with finance

for them finance is a bad thing people

use you know to rip off people no It's

interesting for me mathematically

and also as a way of viewing things in

life.

The attribute of an option

more upside than downside. You pay

little, you get a lot.

And actually sometimes you pay nothing.

Okay? And an option likes volatility.

Why? Because I'd rather have a volatile

environment. We have a lot more upside

and a lot more downside. I'm not exposed

to the downside. I get more upside you

see and this is what we say called

convex.

So under uncertainty you have less to

lose. So you benefit from the positive

side of uncertainty and not the negative

side. The only problem is you got to pay

for it. Sometimes you don't have to pay

for it. So I look at the world with

positive and negative optionality.

Positiveity you have more upside than

downside. The other one you have more

downside than upside. You have a curve

like this. The best way to view it is

this way. Okay? You see? So, accelerated

profits,

let's look at it this way. In this

dimension,

this translates to this. If an event

happens,

GDP is down 1%. I lose a million. Okay?

GDP is up 1%. I make 3 million.

I am antifragile. A simple rule.

It's a reverse. I am fragile. Okay.

Simple. Okay.

So that symmetry explained your if the

market goes down 10% I lose 10 million.

The market is up 10% I make 100 million.

I am antifragile.

Conversely if the market goes down 10% I

lose 10 million. The market goes down

another 10% I lose 1 million. I'm also

antifragile.

You see

nonlinearity

shared by everything. The fragile has

this nonlinearity. My body if I fall 10

m I'm harmed more than 10 times. If I

fell 1 meter

I am fragile. Okay. And you can measure

fragility that way. Now optionality

means that you have the choice. You have

the option. Okay. No obligation. which

mean that you see different things in

the environment you can flip and sure

enough you've heard of Nokia

but had I asked you that question 15

years ago you would have said oh it's

some small company that makes what

boots for you know because they have a

very bad spring in Finland I don't know

if you've been to Finland in the spring

don't okay it's it's all mud right so

that was our business and then they

switched to making you know what you

know is commonly known as the cell

phones, the kind of thing that

grandmothers have and this, you know,

my, you know, my mother uses because she

doesn't want an iPhone. All right, but

they didn't catch on the second

optionality, but good enough. They made

enough money. Another company, Tiffany,

I don't know if you know Tiffany in

America, it's a big company that makes

luxury that sells luxury stuff. Mostly

if someone if you're or your some of

your friends get or your daughter

getting married, you have a list there.

But it all started with the following.

The fellow was selling stationary

and people were showing up and saying,

"Hey, you know, my daughter is getting

married. I want this doctor and Mrs.

Smith, whatever." Okay. So, what you

make $20? Thought about it. Say, "Does

your daughter like diamonds?" Say,

"Yeah." Okay. No, we have some. And it

all started that way. Use the existing

business line you have to introduce

other thing. It's very hard. People

don't realize how hard it is to switch

business

because you have a business plan. Once

you have a business plan, you're married

to that business plan. You're ashamed of

changing course. People searching. I

mean Columbus was going to India. He

discovered the Americas. They still were

in denial, right? That's not what

they're looking for. People are ashamed.

The boss say, "Hey, that's not what

we're in for." You're going to see the

story.

Boeing origin lumber company. They don't

say it, but if you investigate, you

realize the family was a lumber making

company getting a lot of orders for

airplanes. And the son liked to fly. And

sure enough, you know, became, you know,

said there's more money in these flying

things than lumber. And sure enough,

they abandoned lumber because there's no

more lumber in Boeing. Okay. So there

are businesses that are error loving.

A business that's error loving is a

business that has optionality

particularly with its own mistakes.

I don't know if you've heard of that

business. I'm sure you never heard of it

of uh something called Viagra. No. Okay.

So Viagra was a u it was not like the

intention by in a business plan to

improve the lives of 72y old men. That

was not the idea.

It was a what? What was Viagra?

Blood pressure medicine. But they made a

mistake. They mispredicted.

It had a side effect. Out of the 100,000

drugs we have in the market today, all

right, there are fewer than 200 that are

there for what they were made for.

The rest are there for the side effects.

Maskin you use today as a blood thinner,

it's a side effect. of his previous use

as a fever reducer

sorry of a painkiller

which was a side effect of a fever

reducer. All right. So the philosophical

stone is there are some businesses that

gain from randomness. We know exactly

what shape they have. It's not

randomness. It's not luck. It's they

have optionality where you can benefit

from luck or not. You see? So what I

call the philosopher stones.

So we have this illusion that things

grow with education top down techn

education is not we have this illusion

that mathematics leads to science leads

to technology leads to business. It's

rather the opposite.

You see tinkering

trial and error you make small error you

have upside is how things work. So

that's tinkering. So most of what we

know in a western world comes from

tinkering. Even though we may have a

theory for it,

the steam engine was invented by the

Greeks went nowhere.

It was rediscovered by ignorant people.

Ignorant I mean in the academic sense

who are tinkering

you see and actually you can figure out

here what I call Roger be antifragile

than smart that it's much better

to tinker

and not know anything. All you know if

this is better A is better than B to

keep it's called ratcheting up then have

a huge IQ

anytime you outperform the IQ with

tinkering you need a thousand IQ point

to match someone who's an aggressive

thinker so

now principle never miss an opportunity

never never never never they don't come

especially if you have optionality if

especially it cost you very little to

take

to experiment with it

comes the idea of business plan.

It's a prison. So a business plan should

not be a prison

or have a business plan or if you want

but you know try

to have exit things from it. The other

thing is optionality depends much more

on the contract that you have than

industry like real estate for example.

You know investors have a lot more

optionality

and namely Donald Trump. The upside you

keep the losses you give chemical bank.

All right actually bankrupted Manny

Hannie manufacturers handover

at the banks they have no upside. They

take all the risk

you know uh for a little 400 basis

point.

So and of course entrepreneurial success

is not the result of funding. Usually

funding is top down. Funding comes later

when people are already successful. Nor

is it when you look at the name of these

companies the result of education,

formal education. But the education you

get from talking to one another, you

know, while eating the

the kish that they had last night and

happy hour, that form of education works

a lot better than sitting down in a

classroom with a professor. The best

technology is the technology that

doesn't look like technology where they

hide something Steve Jobs understood or

Google where you don't have the clutter

or the cognitive load or the distraction

of having a lot of side avenues where

they do all the thing to simplify which

cost a lot. So that what I think is

their secret okay on that aspect in a

few minutes good technology is something

that destroys bad previous technology.

All right. Not something that brings

something new, but something that makes

the old technology disappear as a

technology in the background. So there

so sort of make you overcompensate

because and actually if I you know that

if I lowered my voice to the point of

being hardly audible,

you would actually get more of my

lecture

by overcompensating on your side. So

there was a mechanism of

overcompensation

tinkering all the reasons why I was

invited but this one he missed in his

explanation which is a central one. So

let me explain now close on that Lindy

effect

about technology. What is this from?

How old is this kitchen?

2,000 year old. Okay. So, let me give

you the rule.

I was asked

I was asked by the economist

years ago after the black swan to

predict the future.

So they wrote to me and said, "Can you

give me a list,

you know, of No, no, actually they wrote

to me saying, we have President Obama,

Prime Minister Cameron, all these people

writing about the future. Can you give

me a list of what's wrong with their

forecast because we can't really, you

say you can't forecast the future?" Sure

enough, I didn't wait to get all their

stuff. Within 20 minutes, I wrote him a

letter very quickly saying, "This is

what's going to happen." They said what

are you the author of black swan or some

impostor or were you lying before you're

you're lying now or vice versa said no

no it's very easy to predict said how

said okay you take the present as

baseline

and 20 years from now you remove

anything that came last 20 years

completely counterintuitive yeah it's

called the Lindy effect after a

restaurant in Broadway and the way

restaurant near Broadway very bad

cheesecake by the way don't go But it's

called the Lindy law where actors would

would would discover the rule. You take

a Broadway show if it's under one year

old it won't make a year a two year

two years to go. So life expectancy of

technology increases with time. Okay.

But the edge is of course technologies

that are thousand years old 2,000 years

old. So it's very very counterintuitive

law that what is new doesn't have much

chance again because 99.9% of

technologies fail replaced by newer

technologies but the old is not replaced

by newer technologies it means it's

resilient to that kind of thing so you

got to learn from the old so my letter

said okay I'm instead of predicting the

future by taking the present as baseline

and adding all these kind of fancy stuff

to the present I take the present as

baseline

Everything that's 20 years old

or younger, remove it from the future.

And effectively the technique works. It

is very predictive. And again, people

told me, well, hey, you know what? At

the time people still use desktops.

How many people use desktop now? The

only reason you have a desktop is to

train employees to make sure they're in

the office because the laptop they're

just the same. Even the laptop being

replaced by tablets. And this rule is

invariant to how you define technology.

Tablet. Uhhuh.

How old is a tablet? Depends how you

look at it.

It can be 4,000 years old as a tablet,

but the modern tablet is few years old.

Which mean that the tablet as a concept

will be there 4,000 years from now,

right? Or at least you know 20 years

from now and the tablet as modern

technologies is going to disappear

replaced by some other technology.

The definition is invariant to the way

you define the technology. If you say

car, if it's box on wheel, 5,000 years,

if it's red convertible, 52 years or

six, whatever. You see the idea? So with

this rule you can tell yourself the

following. Why is social media

successful?

Because it's a destructive technology

that removed the old unnatural

technology. The television

the television you're sitting down what

on oneway relationship with with you

know no discussion. People are

argumentative before that. What did they

do in Vienna? They went to cafes in the

evening. They aggregate you know they go

to the agora. So social media allows

people to communicate in a two-way

relationship. This is why it's

successful, you see, because it's

destroying older technology, you see. So

this is with this I mean we can forecast

technologies based on a rule that if you

want to be successful in technology,

shoot for the old,

okay, and make it look nontechnological.

And that's basically one of the the

reasons, okay? So let me close and wrap

up. Where's the sign that says stop? I

like the stop sign. Always stop on a

stop sign. So let me wrap up in this

thing and in the 10 seconds that I have

left. The so the whole idea here is that

in a world with a lot of uncertainty,

there exists a very rational and

structured way to accept ignorance and

go about it by loving if you're set up

in the right way. The more uncertainty

in the environment, the richer you're

going to get and the more successful,

the happiest you're going to get. But it

requires a rigorous approach to

tinkering. Never miss an option and make

sure you always have in your business

positive optionality.

If you have that,

you'll succeed for a long time. If you

don't have it, sorry to say, but you're

fragile and you won't make it. Thank you

for listening to me.