Admission Open for My Worth Investing Workshops (Offline): I’m excited to announce admissions to my upcoming in-person worth investing workshops within the following cities:
- Bengaluru – Sunday, thirteenth July 2025
- Hyderabad – Sunday, twenty seventh July 2025
- Mumbai – Sunday, tenth August 2025
Click on right here to know extra and e book your seat.
Seats are restricted in every metropolis. The primary 20 members can declare an early chicken low cost.
Whereas flipping by means of a number of of my outdated notes, I stumbled upon a thought from Nassim Taleb that struck me once more with its knowledge. He was explaining the idea of path dependencewhich is a phenomenon the place outcomes should not only a perform of current circumstances, however closely formed by the sequence of occasions that preceded them.
Taleb used a metaphor to clarify this concept:
Ironing your shirts then placing them within the washer produces a special end result from washing your shirts first, then ironing them. The reader can both belief me on this, or attempt the experiment with each sequences on the subsequent Sunday afternoon.
He then utilized that very same thought to cash:
Assume that your capital is round a million {dollars} and you’re concerned in hypothesis. Making one million {dollars} first, then dropping it, is markedly completely different from dropping one million {dollars} first, then making it.
Within the first path (make, then lose), you’re no less than alive to battle one other day. You could find yourself with much less, however you’ve tasted survival. Within the second path (lose, then make), chances are you’ll by no means even get to the “make” half. As a result of dropping early can go away you bankrupt, damaged, demoralized, and most significantly, unable to remain within the sport.
And in case you’re out of the sport, the remainder of the trail now not issues.
That is the place Taleb’s perception dovetails with Warren Buffett’s much-repeated Rule No. 1: “By no means lose cash.” As a result of in case you lose an excessive amount of too early, it doesn’t matter what sensible funding lies forward, you merely received’t have the chips left to play.
Now take into consideration immediately’s inventory market. Extra persons are treating it like a on line casino than ever earlier than. Fuelled by zero-commission buying and selling choices, social media hype, FOMO, and straightforward cash narratives, investing has grow to be much less about compounding wealth over time and extra about hitting jackpots. Many new buyers aren’t even studying the rulebook. They’re rolling cube with leverage, momentum-chasing, options-trading, and buying and selling out and in of shares like they’re altering tables at a on line casino.
Now, to borrow a degree from my good good friend Anshul’s tweet, I received’t place the blame fully on them:
That is what makes the state of affairs much more fragile. For a lot of, as I agree with Anshul, derivatives or senseless buying and selling isn’t actually about creating wealth, no less than not sustainably. It’s seemingly a form of self-medication for uncertainty. A brief thrill. A shot of dopamine to flee deeper fears.
Nonetheless, the irony of all this (mis)behaviour is that almost all don’t realise the sport they’re in has no exit indicators. They’re strolling right into a psychological lure laid by the phantasm of management. And that’s exactly what Taleb warns us about: simply because the roulette wheel turned up crimson ten occasions doesn’t imply you’re due for black. The sequence issues. So does timing.
Two Books. One Objective. A Higher Life.
“Uncover the extraordinary inside.”
– Manish Chokhani, Director, Enam Holdings
“It is a masterpiece.”
—Morgan Housel, Writer, Psychology of Cash
Now, right here’s what it means to your portfolio:
Contemplate two companies.
- Firm A has a clear steadiness sheet, generates constant free money flows, requires little exterior capital, and may afford to soak up shocks. It’s constructed to outlive unhealthy occasions. Even when the market turns towards it, it’d lose quickly however it could keep within the sport.
- Firm Bhowever, is financially fragile because it has excessive debt, skinny margins, and continuously on the sting of survival. A single extended downturn can crush it. It doesn’t have the luxurious of a second probability.
So, what’s the distinction? Firm A could also be on the make, then lose path. It has one thing to lose, but in addition the capability to undergo and recuperate. Firm B begins from the loseand that’s typically the tip of the story.
Now, path dependence is not only concept. It’s all over the place in markets.
- A startup that burns by means of capital and not using a product-market match is path-dependent. If it fails early, no later pivot will matter.
- A leveraged dealer who blows up their account in a crash could by no means return to the market, even when their later concepts are sound.
- An investor who panics in a down market and sells their long-term compounding shares on the backside locks in a path that completely destroys wealth.
Once you make investments, consider path dependence not simply when it comes to enterprise well being, however in your individual potential to remain within the sport. Are you betting in a method that permits for errors and nonetheless leaves you standing? Or are you enjoying a sport the place one flawed transfer can knock you out?
Taleb’s deeper perception right here is brutal however trustworthy: Survival comes first. With out it, nothing else issues. Most speculators immediately are blinded by recency bias and short-term dopamine. They don’t realise that actual investing success is path dependent.
So, ask your self actually: what are you holding in your portfolio immediately? Are these “make, then possibly lose a bit however survive” companies? Or are they “lose first, after which lose all the things” bets dressed up as “sizzling” alternatives?
Discard the latter. Stick to the previous.
That is just because markets have a method of reminding us, typically harshly and with out warning, that sequence issues greater than we expect. Particularly if you’re risking your future on video games that solely appear like investing however function extra like Russian roulette.
