How to thrive and survive in an unpredictable world
Probably you haven’t realized yet but you have been living in two parallel worlds.
As Nassim Taleb explains in his books, one of them is predictable, average and normal. The probabilities of events happening are easy to compute and their impact is low. This one is called Mediocristan.
We spend most of our time in Mediocristan. A place subjected to the laws of time and gravity.
Take height, for example, the tallest person in the world is 8’9” (271 cm), the shortest 21” (53cm) and the average is 5’5” (165cm)
The range is very limited. The tallest person is less than double the average and the shortest is a third of the average. The vast majority of people are very close to the average with very few near the extremes. It would be impossible to find a person 1000 times taller than another.
In statistics, this is known as Gaussian normal distribution and is often represented by a bell-shaped-curve.
The other world is Extremistan where extreme events are rare and unpredictable but have vast consequences.
Money belongs to this world. The net worth of the average US household is $100.000, compare that to Bill Gates’ at $100 Billion. He is 1 million times richer than the average.
If you are in a pub and Bill Gates walks in, all of a sudden everyone becomes a billionaire on average.
Books, music, movies, youtube videos, Medium posts. All belong to Extremistan. It’s a Winner-Take-All world. 1% of the content generates 99% of the revenue.
The main difference between these two domains is scalability. Extremistan is scalable, Mediocristan is not.
Think of a normal middle-class income. The salary of a lawyer, a dentist or an accountant, is tied to the time and effort invested. Time is limited so it’s not scalable. They’ll never be able to make more in one day than in the rest of their career combined.
On the other hand, Extremistan is scalable. 1 book can produce more revenue than 1000 other books combined.
The dangers of Extremistan
While we live in Mediocristan most of the time, we are still affected by Extremistan events, also called Black Swans: 9/11, subprime mortgage crisis, and Corona Virus are examples of rare events with vast consequences.
Here is the catch:
Living in Mediocristan doesn’t protect you from the negative consequences of Extremistan but it prevents you from the positive ones. It’s the worst of both worlds.
Most of us choose to be safe and avoid risk. We take regular jobs with a steady paycheck, get a mortgage, and invest in 401k.
But this is extremely risky. All that effort can be wiped out in one day by an extreme event and this is exactly what it is happening right now with the lockdown.
We are in the middle of the Covid19 and the consequences are going to be catastrophic — unemployment, repossessions, bankruptcies, poverty, loss of health cover and death.
However, the people that inhabit Extremistan are not only protected from the Black Swan but also they will end up richer. That’s the paradox.
Extremistan is safer than Mediocristan
The entrepreneur, the artist, the YouTuber, the writer, not only won’t be affected by this crisis but most of them will even benefit from it
If you live in Mediocristan you are f****d. You will lose your job, your house and your savings. The only thing to do is try and survive as well as you can and then get ready for the next crisis. There will be more Black Swans and it could get even worse than this.
To get ready for the next crisis do this:
Get out of Mediocristan
Don’t work for a salary, become an artist or an entrepreneur.
There is nothing more addictive than a monthly salary.
Start a side hustle, produce something of value, share it with the world, learn to sell, to market, to scale and to promote. Learn new skills, make mistakes, tinker, fail and try again.
The only way to be safe is to get used to risk
Take risks but design a system in which is impossible to lose everything. If investing, avoid the middle way, go extreme with 10% of your capital, and very conservative with the rest 90%. This is known as the barbel strategy. For example 10% on Bitcoin and the rest in Bonds. This way is impossible to lose it all and when you win the upside will be huge.
Make sure you save at least 10% of your income. Get enough to survive for at least a year shall the worse happens
Live below your means. Become a stoic. You don’t need half the crap you’ve got — Train yourself to be strong. Exercise, meditate, fast and enjoy the little things in life- going for a walk, sunshine and fresh air.
Transfer your risk to others. It’s the best investment.
Always think worst-case scenario
What would you do in an SHTF situation? Get ready for it physically, mentally, and spiritually?
Learn to appreciate and enjoy challenges
Learn new skills, go to the gym, try something new, put yourself in difficult situations. When you get used to it you’ll develop the mental muscle and everything will be easier. Get out of your comfort zone.
The benefits of Extremistan
Whether you like it or not you already live in Extremistan, Mediocristan is just an illusion, a temporary haven between major disasters.
So, get used to it. Change your mindset and expose yourself to the benefits of Extremistan while protecting yourself from the downsides.
Only do things that scale. Write a book, make a podcast, release an online course, fill for a patent, create a franchise. Produce anything that once done you can reap the benefits forever at no extra cost or effort.
Build passive income sources
Make money while you sleep. Apart from the aforementioned, try affiliate marketing, sell your photos online, buy a blog and profit from the traffic, experiment with Shopify and drop-shipping, invest in crypto or startups, build an app. Get several sources of income to protect your downside. The probability if everything failing at the same time will be very low
The main benefit of Extremistan is that you only have to be right once. Edison failed 1000 times while trying to invent the light-bulb but when he got it right he solves a problem for the entire world and became very rich in return.
You only have to write Harry Potter, design Windows, or invent the iPhone once and you are set for life. I know this sounds a bit far fetched but everyone at their level can take some risk and produce content that is potentially scalable.
Welcome to Extremistan, the world you’ve been inhabiting all along without even realizing it.
Enjoy its benefits but protect yourself