Some things benefit from shocks. They thrive and grow when exposed to volatility, randomness, disorder and stressors and love adventure, risk and uncertainty. Yet, in spite of the ubiquity of the phenomenon, there is no word for the exact opposite of fragile. Let us call it antifragile.
- Nassim Taleb - Antifragile
Apple (NASDAQ:AAPL) is not antifragile. At best, it is robust. My fellow contributor Mark Hibben recently penned an article titled Is Apple Antifragile? It is not by Nassim Taleb's definition, see above, who invented and dubbed the concept. Neither does it live up to the characteristics Taleb assigns to something antifragile in his work which are small companies, companies that can pivot, companies with embedded options, investments with open-ended outcomes and companies led by owners/operators and/or aggressive tinkerers.
If there's one mega cap that could live up to these characteristics, except for the size factor, it is Amazon (NASDAQ:AMZN). But otherwise I can think of very few.
If the designation antifragile is rather vague and limited to specific sources of harm or volatility, and up to a certain range of exposure, it is no more and no less so than the designation fragile. Antifragility is relative to a given situation. A boxer might be robust, pale when it comes to his physical condition, and might improve from fight to fight, but he can easily be emotionally fragile and break into tears when dumped by his girlfriend.
- Nassim Taleb - Antifragile
One of the problems with the term or at least an attribute that makes it hard to tackle for researchers, something Taleb might view as a benefit, is its vagueness leading Hibben to misapply the attribute to Apple.
This goes so far beyond a reasonable understanding of the term it is worth arguing against.
Benefits from volatility?
Think of antifragility in terms of the relationship between "a thing" and volatility. Something that's fragile can't stand volatility while something that's antifragile benefits greatly from it.
Take Tom Brady for instance. Say, you are Tom Brady. You are arguably the best quarterback of all time, you are dating supermodel Gisele Bundchen and you are friends with President Trump, someone who exploited his antifragility to the max, and won after an upset.
Is your wellbeing likely to improve on inviting a lot of volatility into your life?
I’d say no.
Probably, it’s best to protect the status quo.
Antifragility or even robustness by Taleb's own assertion aren't attributes you should be after under all circumstances. Sometimes you have to accept being on top and perhaps consequently vulnerable.
Apple is like the Tom Brady of electronic goods manufacturers. It dominates its main markets in profit share, i.e. taking the largest profits out of its markets, and it is the premier mainstream brand. Is it likely to benefit from volatility in its industry? Probably neither.
How antifragile is Apple?
I’ve put together a questionnaire based on the qualitative factors in Taleb's definition. Try to answer these truthfully and the aggregated results could present us with an interesting picture of Apple’s fragility or antifragility.
In my opinion Apple ticks zero of the boxes.
Maybe you could argue Apple loves adventure, but otherwise all it really wants is for the status quo to continue and not get disrupted. Who doesn't love adventure really?
Yes, there are certain smaller businesses within Apple like the Services business that benefit from volatility. Think of a release like Nintendo’s (OTCPK:NTDOY) Pokemon Go. Volatility within the app store is great for Apple, as it’s not exposed to the downside, but does benefit from the upside.
Apple as a whole is heavily reliant on the sales of the iPhone with its short product cycles and would not benefit from shocks to that market at all. It has everything to lose and little to gain with almost everyone who can afford it already owning a high-end smartphone.
Personally, I don't like betting on the status quo and frantically seek out antifragility. But that starts by correctly identifying what's what.
Apple is definitely not.
Examples of potential antifragile investments could be Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) led by Warren Buffett or Oaktree Capital (NYSE:OAK) led by Howard Marks. Berkshire has a reputation as the go-to place to obtain financing and a stamp of approval during a crisis. At a price...
Oaktree is an asset manager that has a reputation for distressed debt investing and gathered a large amount of funds quickly post 2008. It grows when the economy is under stress.
A lesser known alternative is FRMO Corp. (OTCPK:FRMO) which we hold in The Black Swan Portfolio.
Gun companies like Sturm, Ruger (NYSE:RGR), Vista Outdoor (NYSE:VSTO) and American Outdoor Brands (NASDAQ:AOBC) tend to benefit from negative legislation as people go out and start hoarding guns in anticipation of a ban and they benefit from media items about gun violence as it drives people to protect themselves.
Disclosure: I am/we are long FRMO.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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