How Embracing Chaos Can Make You Rich

Uncover the Hidden Dangers in Your Diversified Portfolio

Like stormy love, some thoughts are so antifragile that by trying to get rid of them, we end up feeding them until they become obsessions. Psychologists have demonstrated the irony of thought control: the more energy we dedicate to trying to control our ideas and what we think about, the more dominance these ideas exert over us.

This same paradox can be observed in the world of personal finance and investment. Often, desperate attempts to control financial risk and seek absolute security can lead to undesired outcomes. Today, we will explore this idea through three essential lessons.

Many investors believe they can eliminate risk by diversifying their portfolios and following traditional advice. However, this mindset can be counterproductive. Just as trying to control our thoughts only makes them more dominant, trying to control every aspect of our portfolio can make it more vulnerable.

For example, during the 2008 financial crisis, many investors diversified their assets thinking they were protected. However, when the market collapsed, they discovered that their strategies were not as solid as they believed. Risk does not disappear simply because we try to control it; in fact, it can become stronger and more unpredictable.

The Illusion of Market Control

The second important lesson is the illusion of market control. Investors often believe they can predict and control market movements through detailed analyses and complex strategies. However, history has shown that the market is intrinsically volatile and unpredictable.

A clear example of this is the collapse of Enron in 2001. Many investors, trusting their analyses and the apparent solidity of the company, ignored warning signs. When the company collapsed, the losses were devastating. This situation highlights the irony of control: the more we try to predict and control the market, the more exposed we are to its whims.

The Value of Antifragility in Finance

The third lesson centers on the concept of antifragility, popularized by Nassim Nicholas Taleb. Unlike robustness, which seeks to resist change, antifragility benefits from chaos and uncertainty. In finance, this means adopting strategies that not only withstand volatility but thrive in it.

A practical example of this is investing in assets like gold and bitcoin. Both have proven to be antifragile in times of economic crisis. While traditional currencies and stocks can suffer greatly during market collapses, gold and bitcoin tend to increase in value. These investments do not attempt to control uncertainty; instead, they benefit from it.

Embracing Uncertainty

The key to managing our finances and investments is not to try to control every variable but to accept uncertainty and use it to our advantage. This means diversifying intelligently, not under the illusion of eliminating risk, but to be prepared to benefit from volatility.

History teaches us that those who try to control too much often end up losing more. Just as with antifragile thoughts, our financial decisions should allow us to thrive in chaos rather than trying to eliminate it. True financial wisdom lies in accepting the unpredictable nature of the market and adapting our strategies to benefit from it.

As investors, we must learn to embrace antifragility instead of fighting against it. Instead of obsessing over controlling every aspect of our finances, we should focus on building portfolios that thrive in uncertainty. Only then can we truly master our finances and achieve long-term financial security.

This is the paradox of personal finance: the more we try to control and eliminate risk, the more vulnerable we become. By accepting and adapting to uncertainty, we can become truly antifragile investors, prepared for whatever the market may bring.

This week, on Thursday, there was an increase in volatility of nearly 20%. This is quite normal in the markets. This movement alone caused our portfolio to gain more than 2% in value, despite the fact that our asset allocation in OTM options is extremely small.

Now, as we do every Sunday, we present it to you in detail.