Sunday, August 9, 2015

Antifragile - Things That Gain from Disorder by Nassim Nicholas Taleb

Nassim Nicholas Taleb's (Author of The Black Swan) work is always thought provoking and not your normal mainstream stuff such as how to get rich quick, how to be happy, bla bla bla. His works often lead us to ask more questions and challenge the so-called conventional wisdom. This is why he is one of my favourite author and one will always look at the world differently after reading his book. In his latest work, as the title suggests, it is about things that gain from volatility, disorder or chaos and he has made it clear that it is not robust. Robust simply means that it can withstand volatility, disorder or chaos, whereas antifragile (a term coined by Nassim) is about things that GAIN from volatility, disorder or chaos. Sounds interesting? It also made an argument about the intervention from policy makers and politicians in an attempt to regulate the economy which usually results in making the conditions worse. In the book, Nassim highlights it is important to be antifragile in order to benefit from disorder rather than be fragile, i.e. appears to be beneficial in the short-term but is unable to withstand disorder and collapse at the first instance of volatility. For example, it is fragile if you are making small gain in the share market, say for 3 years and the moment a financial crisis such as what occurred in 2008 appears, you lose your entire fortune and even maybe more.

I don't think I am doing the book a favour by summarising its contents here but as what Nassim himself said in the book, every sentence in the book was a derivation, an application, or an interpretation of the short maxim: Everything gains or loses from volatility. Fragility is what loses from volatility and uncertainty. The followings are some excerpts from the book which I am sharing (words in blue are mine):

1) Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure, risk, and uncertainty. Yet, in spite of the ubiquity of the phenomenon, there is no word for the exact opposite of fragile. Let us call it antifragile.

2) And we can almost always detect antifragility (and fragility) using a simple test of asymmetry: anything that has more upside than downside from random events (or certain shocks) is antifragile; the reverse is fragile.

3) .....depriving systems of stressors, vital stressors, is not necessarily a good thing, and can be downright harmful. (The point here is a little bit of stress or harm to our body, life, etc. is not a bad thing as it build up resistance)

4) How do you innovate? First, try to get in trouble. I mean serious, but not terminal, trouble.

5) It is quite perplexing that those from whom we have benefited the most aren't those who have tried to help us (say with "advise") but rather those who have actively tried - but eventually failed - to harm us.

6) In a natural environment, people die without aging - or after a very short period of aging. For instance, some markers, such as blood pressure, that tend to worsen over time for moderns do not change over the life of hunter-gatherers until the very end. (Here, the author is trying to point out that symptoms of aging such as high blood pressure is a result of modern lifestyle)

7) For an illustration of how families of organisms like harm in order to evolve (again, up to a point), though not the organism themselves, consider the phenomenon of antibiotic resistance. The harder you try to harm bacteria, the stronger the survivors will be - unless you can manage to eradicate them completely. The same with cancer therapy: quite often cancer cells that manage to survive the toxicity of chemotherapy and radiation reproduce faster and take over the void made by the weaker cells.

8) You may never know what type of person someone is unless they are given opportunities to violate moral or ethical codes.

9) He who has never sinned is less reliable than he who has only sinned once. And someone who has made plenty of errors - though never the same error more than once - is more reliable than someone who has never made any. (Would you trust someone who has never made any error? That person is most likely to be a person who never make big decisions and avoid decision making just to make himself look good)

10) Variations also act as purges. Small forest fires periodically cleanse the system of the most flammable material, so this does not have the opportunity to accumulate. Systematically preventing forest fires from taking place "to be safe" makes the big one much worse. For similar reasons, stability is not good for the economy: firms become very weak during long periods of steady prosperity devoid of setbacks, and hidden vulnerabilities accumulate silently under the surface - so delaying crises is not a very good idea. (I guess the same applies to exposing children to germs and small illnesses. Parents should not be over-protective which may end up making their children "fragile")
11) In business and economic decision making, reliance on data causes severe side effects - data is now plentiful thanks to connectivity, and the proportion of spuriousness in the data increases as one gets more immersed in it. A very rarely discussed property of data: it is toxic in large quantities - even in moderate quantities. (Remember the saying: Too much of a good thing is BAD!)
12) ..... statement by the financier Warren Buffet that he tries to invest in businesses that are "so wonderful that an idiot can run them. Because sooner or later, one will."
13) Success brings an asymmetry: you now have a lot more to lose than to gain. You are hence fragile. (This sometimes explain why big corporations loses their competitive edge to smaller, more nimble competitors - partly it is due to smaller companies taking bigger risk and sometimes, the risk pays off)
14) When you become rich, the pain of losing your fortune exceeds the emotional gain of getting additional wealth, so you start living under continuous emotional threat. (There is optimum amount for everything. Moderation is key - even for money)
15) An intelligent life is all about such emotional positioning to eliminate the sting of harm, which as we saw is done by mentally writing off belongings so one does not feel any pain from losses. The volatility of the world no longer affects you negatively.
16) The fragility that comes from path dependence is often ignored by businessmen who, trained in static thinking, tend to believe that generating profits is their principal mission, with survival and risk control something to perhaps consider - they miss the strong logical precedence of survival over success. To make profits and buy a BMW, it would be a good idea to, first, survive.
17) ..... if something is fragile, its risk of breaking makes anything you do to improve it or make it "efficient" inconsequential unless you first reduce that risk of breaking.
18) Georges Simenon, one of the most prolific writers of the twentieth century, only wrote sixty days a year, with three hundred days spent "doing nothing." He published more than two hundred novels. (Focus is very important. Do not equate busyness with productivity -
19) The strength of the computer entrepreneur Steve Jobs was precisely in distrusting market research and focus groups - those based on asking people what they want - and following his own imagination. His modus was that people don't know what they want until you provide them with it.
20) ..... halo effect, the mistake of thinking that skills in, say, skiing translate unfailingly into skills in managing a pottery workshop or a bank department, or that a good chess player would be a good strategist in real life. (For successful people, don't be too confident or cocky on your own ability!)
21) People with too much smoke and complicated tricks and methods in their brains start missing elementary, very elementary things. Persons in the real world can't afford to miss these things; otherwise they crash the plane.
22) ...... less is more in action: the more studies, the less obvious elementary but fundamental things become; activity, on the other hand, strips things to their simplest possible model.
23) The sociologist of science Steve Shapin, who spent time in California observing venture capitalists, reports that investors tend to back entrepreneurs, not ideas. Decisions are largely a matter of opinion strengthened with "who you know" and "who said what," as, to use the venture capitalist's lingo, you bet on the jockey, not the horse.
24) Let me stop to issue rules based on the chapter so far. (i) Look for optionality; in fact, rank things according to optionality, (ii) preferably with open-ended, not closed-ended payoffs; (iii) Do not invest in business plans but in people, so look for someone capable of changing six or seven times over his career, or more (an idea that is part of the modus operandi of the venture capitalist Marc Andreessen); one gets immunity from the backfit narratives of the business plan by investing in people. It is simply more robust to do so; (iv) Make sure you are barbelled, whatever that means in your business.
25) You select people on their ability to hang around, as a filter, and studious people were not good at hanging around: they needed to have a clear task.
26) But there is something central in following one's own direction in the selection of readings: what I was given to study in school I have forgotten; what I decided to read on my own, I still remember. (The same applies to profession? You are likely to excel in the profession which you chose rather than forced to?)
27) ..... if you can say something straightforward in a complicated manner with complex theorems, even if there is no large gain in rigor from these complicated equations, people take the idea very seriously.
28) Someone with a linear payoff needs to be right more than 50 percent of the time. Someone with a convex payoff, much less. The hidden benefit of antifragility is that you can guess worse than random and still end up outperforming. Here lies the power of optionality - your function of something is very convex, so you can be wrong and still do fine - the more uncertainty, the better.
29) ..... if you have favourable asymmetries, or positive convexity, options being a special case, then in the long run you will do reasonably well, outperforming the average in the presence of uncertainty. The more uncertainty, the more role for optionality to kick in, and the more you will outperform. This property is very central to life.
30) ..... charlatans are recognizable in that they will give you positive advice, and only positive advice, exploiting our gullibility and sucker-proneness for recipes that hit you in a flash as just obvious, then evaporate later as you forget them. (Beware of seminar where they teach you how to get rich quick!)
31) Yet in practice it is the negative that's used by the pros, those selected by evolution: chess grandmasters usually win by not losing; people become rich by not going bust (particularly when others do); religions are mostly about interdicts; the learning of life is about what to avoid.
32) ..... we know a lot more what is wrong than what is right, or, phrased according to the fragile/robust classification, negative knowledge (what is wrong, what does not work) is more robust to error than positive knowledge (what is right, what works).

33) Rephrasing it again: since one small observation can disprove a statement, while millions can hardly confirm it, disconfirmation is more rigorous than confirmation.

34) For the Arab scholar and religious leader Ali Bin Abi-Taleb (no relation), keeping one's distance from an ignorant person is equivalent to keeping company with a wise man.

35) ..... Steve Jobs: "People think focus means saying yes to the thing you've got to focus on. But that's not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I'm actually as proud of the things we haven't done as the things I have done. Innovation is saying no to 1,000 things."

36) We are built to be dupes for theories.

37) An attribution problem arises when the person imputes his positive results to his own skills and his failures to luck.

38) As in anything with words, it is not the victory of the most correct, but that of the most charming - or the one who can produce the most academic-sounding material.

39) Factum tacendo, crimen facias acrius: For Publilius Syrus, he who does not stop a crime is an accomplice.

40) So opinion makers who were so proudly and professionally providing idle babble will eventually appear to win an argument, since they are the ones writing, and suckers who got in trouble from reading them will again look to them for future guidance, and will again get in trouble.

41) Never ask anyone for their opinion, forecast, or recommendation. Just ask them what they have - or don't have - in their portfolio.

42) Look at it again, the way we looked at entrepreneurs. They are usually wrong and make "mistakes" - plenty of mistakes. They are convex. So what counts is the payoff from success.

43) Take this simple heuristic - does the scientific researcher whose ideas are applicable to the real world apply his ideas to his daily life? If so, take him seriously. Otherwise, ignore him.

44) Anything one needs to market heavily is necessarily either an inferior product or an evil one. (Good to remember this. Example includes Coke, McDonald, cigarettes, etc.)

45) ..... I wonder why people don't realize that, by definition, what is being marketed is necessarily inferior, otherwise it would not be advertised.

46) ..... marketing beyond conveying information is insecurity.

This latest book by Nassim Nicholas Taleb somewhat reinforces his earlier idea of Black Swan event and how fragile we can be to such extreme event. We can be making money from the stock markets and financial crisis can wipe out our entire gain and more. This is why Nassim Nicholas Taleb advocates that we should instead be antifragile and seek to benefit from the volatility. This strategy, while it does make sense, is not easy to execute. We will need to be patience and to go against the current (that includes our friends and family members) is not easy as we will somewhat seem to be "crazy" or "stupid" for quite a long time before being proven right (if ever we live long enough to be proven right and not ends up being an outcast before that happens). In investment, we also need to have substantial reserves before our "bet" comes true because it is difficult to time the event. As such, it is important to understand the idea presented by Nassim and adjust it to real life situation. In summary, this is an excellent book and it would be "crazy" not to read it unless you believe in the adage: Ignorance is bliss!

Sunday, April 19, 2015

Glenfiddich 15 years - Even non-regular whisky drinkers would love it!

Glenfiddich Single Malt Scotch Whisky - 15 years (ABV: 40%)

The Solera Vat - Unique to Scotch whisky, our Solera Vat marries whiskies matured in sherry, bourbon & new oak casks and is always kept at least half full. This creates a rich & complex whisky which increases in depth & intensity each year.

(Description on the bottle case of the Glenfiddich 15 years)

Glenfiddich is the world's best selling single malt and what better way to start this blog by sharing my thoughts on this excellent whisky. Everything about this whisky is beautiful from the unique case which is easily recognisable as unique to Glenfiddich to the colour of the whisky. Just take a look at the beautiful golden brown colour of the whisky after absorbing the characteristics of the sherry, bourbon and oak casks. This 15 year old is unique in a sense that this Solera blending not only adds depth but a different softer mouth-feel. What you have is therefore, a whisky with richer depth and feel with a little bit of sweetness from the sherry and bourbon casks. More on the taste later but let's start by appreciating its beautiful and rich colour.

Like appreciating any fine whisky, a crystal clear glass will enhance the experience. You can see from the picture below the beautiful colour of the whisky as it reflects the light from its surrounding. It is just begging us to further explore this water of life.

Before sharing my own amateur thoughts on this great whisky, the following are tasting notes from some real expert.

From "The World Atlas of Whisky, 2nd Edition" by Dave Broom (coincidentally a Glenfiddich Award-winning Author):
Nose:  Ripe and very soft with a character akin to plum jam and baked apple.
Palate: Soft and silky. Thicker than 12 year old with stewed black fruit, coconut notes, and dried grass.
Finish: Ripe and full.
Conclusion: Solera adds a richer depth and feel.

From "1001 Whiskies You Must Try Before You Die":
The nose just draws you in, slowly revealing layers of fruit, from apple and pear to more tropical flavours, such as mango. There is a touch of pie crust, too. In the mouth, more depth is discovered with malt, fruit, and oak grip. The finish is woody and fruity.

Now, for my own personal description of the whisky. I always sample the whisky two ways, i.e. with or without ice. Let's face it. For us living in the tropics, we may not fully enjoy a warm whisky simply because of our hot and humid weather and sometimes, ice do bring out the flavour of the whisky.

Let's start with without ice:
Sweetness with spicy finish. Long aftertaste that lingers and feels strong (to me) even though ABV is only 40%.

With ice:
Dilutes the smell but also mellow down the strong taste. Brings out the sweetness and smoothness of the 15 years from its days in the sherry and bourbon casks. One drawback of adding ice is that it also dulls the colour of the whisky and that greatly upsets me since I really appreciates the sight of the whisky in its golden brown colour. Not sure if using chilled whisky stone instead of ice would have the same effect on taste but minus the adverse effect of dulling its colour. Would update this review once I manage to source for some good quality whisky stone.

So, in conclusion, this would be my personal opinion on how to enjoy this fine whisky:
1. Start by appreciating its smell and colour undiluted in a crystal clear glass.
2. Add just one or two pieces of ice and enjoy!
Of course, good drinking companion always help!

Wednesday, October 15, 2014

RON97 price would be the same as RON95 price soon?

The recent hike in RON95 petrol price by another 20sen to RM2.30 is of course, least welcomed by all Malaysians. This is because it will not just affect driving cost but will cause prices of other essential goods to rise as well. Anyway, with anger subsiding and Malaysians starting to adjust to higher oil price, it is interesting to take a look at the world oil price currently.
The chart is interesting because on 9th September 2014, RON97 price was actually reduced by 10sen to RM2.75 from the last revision in June 2014. From the chart above, Brent Crude Oil price in June 2014 is about USD107/bbl and in September 2014, it has dropped to about USD103/bbl. As such, if a drop of USD4/bbl translates to 10sen reduction in RON97 price, based on the latest Brent Crude Oil price of about USD85/bbl, the reduction of USD18/bbl would translates to 45sen reduction in RON97 price? This would mean RON97 price would be RM2.30 and would be the SAME AS RON95!!!
Isn't that interesting? Not sure what would happen then and how would the government justify the increase in RON95 price or are we expecting a reduction in RON95 price in line with falling international crude oil prices?
Disclaimer: The above computations are based on simple assumptions. Of course, the price mechanism would be more complicated as it is based on a managed float mechanism (I don't know how that works though) but the assumptions that RON97 price should drop in line with dropping international crude oil price should hold.