By Property Soul
nassim-talebIt was exciting to see Nassim Nicholas Taleb presenting “Antifragility: Gaining From Volatility, Stress And Disorder” in the open space outside National Library last Wednesday. Like a loyal fan longing to meet her idol, it made my day when I managed to get his autograph at the end of the session. (P.S. I hope that I can cheer my readers up the same way when I autograph my book.)
Taleb answered every question from the audience with a series of metaphors. One must have a comparable high level of imagination to follow his arguments.
I thoroughly enjoy reading his book, Antifragile: Things That Gain From Disorder. I agree with the author on almost every point he tries to drive home. Above all, I can easily apply his concepts in property investment which is, to a high extent, an antifragile game.
1. What kills make others stronger. 

“Those who perish contribute to the overall safety of others.”

Every plane crash improves aviation systems and brings passengers closer to safety. The 2004 Indian Ocean tsunami prompted the building of more sophisticated warning systems. The Fukushima Daiichi nuclear disaster in 2011 resulted in the closure of nuclear power plants in countries all over the world.
The 1997 Asian financial crisis was a painful lesson that forced many Asian countries to build a safer banking system. The 2008 U.S. subprime crisis was a wake-up call for other governments to review high-risk lending practices and home mortgages in their own country.

“It is often the mistakes of others that benefit the rest of us – and, sadly, not them.”

In other words, someone has to fail for others to succeed.
2. What does not kill me kills others. 

“What did not kill me did not make me stronger, but spared me because I am stronger than others; but it killed others and the average population is now stronger because the weak are gone.”

The eight rounds of cooling measures might ‘spare’ you because you have a high credit score or you are buying for the first time. But these restrictions ‘kill’ others because, on top of the high stamp duties and low loan-to-value, they may fail the Total Debt Servicing Ratio (TDSR) and can’t borrow from banks.
These are buyers who sacrifice for the government’s determination ‘to ensure a stable and sustainable property market’. But after ‘the weak are gone’, the housing mortgage market ‘is now stronger’. If the property market is harmed by any negative market factor, Singapore will have less non-performing loans and negative equities.

“Someone paid a price for the system to improve.”

3. The more you have, the more fragile you are.

“Success brings an asymmetry: you now have a lot more to lose then to gain.”

Unlike an ordinary folk who can’t afford to buy any private property, when you have a big stake in properties, you are upset every time there is a new round of cooling measures. Similarly, if you are a highly-leveraged multiple property owner, you are more hard hit when the market tanks. You are hence fragile.
Markets go through the stages from recovery to boom, and from an inflating bubble to a total collapse. Wealthier countries are prone to make more severe mistakes and to fail more miserably because of higher unpredictability and fragility.

“When you become rich, the pain of losing your fortune exceeds the emotional gain of getting additional wealth, so you start living under continuous emotional threat.”

4. We can’t put all false predictors in jail.

“I find it profoundly unethical to talk without doing, without exposure to harm, without having one’s skin in the game, without having something at risk.”

We all like to listen to the so-called experts making predictions about the property market – the media love it; the audience love it. These ‘experts’ and their predictions are fragile because they are exposed to prediction errors. Honestly, who can tell what is going to happen in the future?
Below are the media predictions and the reality of the property market in the 2000s and 1990s, extracted from No B.S. Guide to Property Investment.
But they don’t have to pay a price for their mistakes. In fact, in our history no one has ever been convicted by law because their projection figures or forecast trends are far from reality. No one has ever paid a price for a prediction error.
We can’t stop people from asking for predictions. We can’t stop experts from making false predictions. But we can at least request the predictors to eat their own cooking and have their skin in the game.

“Never ask anyone for their opinion, forecast, or recommendation. Just ask them what they have – or don’t have – in their portfolio.”

5. It’s an unfair winner-take-all game.

“Almost everything contemporary has winner-take-all-effects.”

The privileged in our world all know how to play the antifragile game:

  • Keep the good and ditch the bad; cut the downside and keep the upside.
  • Ensure that they have more to gain then to lose.
  • Steal the options from others with all the upside and no downside to themselves.

Senior executives in banks and fund managers may have made terrible mistakes and lost more than they ever made. But they are still paid billions in compensations and commissions. The bankers and fund managers take all the upside, leaving the downside to customers and taxpayers.
New condominium projects are sold at record-high prices during new launches. Government sold the land, developers made their profits, and agents earned their commissions. When the market slows down, home buyers are left alone to face the music of falling prices, market oversupply, interest rate risk, etc. while they have no option but to continue paying the same record-high selling price in phases to the developers.
6. Beware of the agencies.
The marketers of overseas properties or investment opportunities can speak highly of the projects that they are marketing to potential buyers, though they themselves are not related, or not even familiar, with the owners and their businesses. They take the upside and make their commission. But when problems surface, they can’t do anything. Buyers are left to deal with all the downside.
Taleb calls this the ‘agency problem’:

“The manager of a business is not the true owner, so he follows a strategy that cosmetically seems to be sound, but in a hidden way benefits him and makes him antifragile at the expense (fragility) of the true owners or society. When he is right, he collects large benefits; when he is wrong, others pay the price.”

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