risk
Survive first
The rule
You can keep playing only if you are never wiped out. Staying alive comes before any clever plan about profits.
Where it flips
Too much caution is also a slow ruin. Money that never takes any risk is eaten by rising prices over the years. Surviving means avoiding the killer bet, not avoiding all risk.
Taleb cares most about ruin: a loss you can never come back from. A plan with a lovely average return but a small chance of taking you to zero is a bad plan. Once you hit zero, there is no next round, and that nice average never reaches you. This is why you need a way out (module 018) and why stops and bet limits (module 032) exist. They keep one bad bet from ending the whole game. Before a big leveraged trade or an all-in on crypto, do not ask 'how much can I make'. Ask 'what if this is the one that finishes me'.
A worked example
A trader wins nine months in a row using borrowed money. Then one sharp fall forces a sell-off and the account hits zero. The nine wins are wiped out by the one loss they could not survive. [illustrative]
How to spot it
- ·no single bet can take you to zero
- ·you plan your way out (a stop, a way to sell) before you enter
- ·you ask the ruin question before the reward question
Nassim Nicholas Taleb · Skin in the Game; Antifragile