Be Fire and Wish for the Wind

“Wind extinguishes a candle and energizes fire.

“Likewise with randomness, uncertainty, chaos; you want to use them, not hide from them. You want to be the fire and wish for the wind. This summarizes this author’s non-meek attitude to randomness and uncertainty.

“We don’t just want to survive uncertainty, to just about make it. We want to survive uncertainty and, in addition — like a certain class of aggressive Roman Stoics — have the last word. The mission is how to domesticate, even dominate, even conquer, the unseen, the opaque, and the inexplicable.”

– Nassim Taleb, Antifragile

AB Comments:

What does it mean to “be fire and wish for the wind” from a trading perspective?

First, consider the market strategies that get put out like candles. Selling naked puts against the S&P 500 index, for example, is a well-documented means of doing well temporarily, then extinguishing one’s trading account. So too with “reaching for yield” strategies in which steady-eddie returns are generated in periods of quiet via the use of questionable leverage. Volatility comes along and blows out the P&L candle.

Strategies that benefit from outlier moves, and thrive on the exploitation of tail risk, would be the fire in Taleb’s metaphor. Trend followers and other long gamma traders “wish for the wind” of heightened volatility and fat tail price movements.

Another way to wish for the wind (i.e. embrace volatility) is to develop trading capabilities, if not a full-scale methodology, that can profit in bearish environments. Because so many managers are long-only, it can be quite valuable, from both an OPM and absolute return perspective, to have the ability to thrive in bear markets (or at least to generate solidly positive returns, while the majority of investors get hammered).

This concept applies in life too. Some people are weakened substantially, or even see their candle “blown out” entirely, by the winds of adversity. Others get stronger — more resilient and powerful — in the presence of setbacks and challenges. The wind makes their inner fire burn hotter.

How resilient and robust is your approach to trading… and to life? Do you require idealized conditions to thrive… or can you burn almost anywhere? Are you the candle or are you fire?

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