In the beginning of the lockdown caused by the covid19 I run into a book called “Antifragile” written by Nassim Nicholas Taleb.
I strongly recommend this book, it gives us a deep vision of something that we can somehow perceive in nature, presented in so many different facets of life. The book is not only written by one of the foremost thinkers of our time, and reveals how to thrive in an uncertain world, and it also explains it very charmingly.
Tips that can somehow be applicable to finance:
I have tried to pick some tips to share with you.
“… anything that has more upside than downside from random events (or certain shocks) is antifragile; the reverse is fragile”. That´s the definition of antifragility, we are not naturally used to the concept, actually we don´t have a proper name for it.
Sometimes projects have more downside than upside, when valuations are not properly done, or projects poorly planned. That doesn´t mean not being able to measure the cash flows properly but also as Nassim Taleb says in his book:” This one-sidedness brings both underestimation of randomness and underestimation of harm, since one is more exposed to harm than benefit from error. If in the long run we get as much variation in the source of randomness one way as the other, the harm would severely outweigh the benefits”, as long as other explanations.
So that´s one of the reasons to get a project into losses, by been a fragile model impacted by randomness along the years.
Robustness is not antifragility as Nassim Taleb explains in his book, but at least we should work daily to test our companies, especially in finance, to get some robustness (if not antifragility) by working on how the business model affects the P&L account, risk management, trying to avoid strong impacts in our companies and also small ones that would drift the company rentability into a poor outcome.
In SOCO FINANCE HUB we understand this is also another responsibility of the CFO, trying to take the company to a better position in the risk reward curve.
During these latest months some companies have been through a very distress situation and it is the Financial Director responsibility to lower these scenarios, keep finance, treasury, controlling and corporate matters under control and doing so help the operations work as smooth as possible.
Soon much more about Antifragility…
