Oxygen is really nice

Let's define exposure as I perceive it in my mental model. To my feeble monkey brain, exposure refers to the state of encountering various phenomena or situations. These situations can range from being favorable to unfavorable, or appear positive to negative. They might be comfortable or uncomfortable, yet they often hint at an outcome. Whether the outcome will be good or bad, we know not.

So, how does this play out in real-life scenarios?

Exposure, for instance, to oxygen and nitrogen, serves as a good example. Imagine, as a human, your body's interaction with these elements. Given this, your metabolism and bodily functions essentially require the inhalation of air, which contains both oxygen and nitrogen. This process is vital for transferring oxygen into your bloodstream, facilitating the transport throughout your body. This oxygen is crucial for metabolizing various molecules, ultimately generating energy. This energy is essential for the operation of your brain, heart, and other organs.

Thus, exposure to oxygen and nitrogen appears immensely beneficial. Generally, it's undesirable to find oneself in environments devoid of these elements, such as underwater or in space. This type of exposure is positive and fundamental. It's a constant element of human existence, from the moment of birth until death.

The iPhone could have made your grandchildren rich

There are more nuanced examples of exposure: those experienced by participants of the trading system. Placing financial bets on the performance of a company or its prospects over a specific period is what you do day-in and day-out. Your bets may favor or oppose a particular company, index, or commodity (whatever's cool these days, I guess). Yet, this is a very interesting example, and one I am just realizing. This scenario presents the double-edged sword of exposure.

Consider a trader who bet on Apple stock in 2007, around the time of the iPhone's introduction. With Steve Jobs on that stage, unveiling the iPhone, some trading practicioners, shat themselves from joy. If you had taken a position anticipating a positive market response to a major development like the iPhone's launch, you would have been exposed to this event through your financial investment.

This exposure to a technological milestone via the financial markets could drastically alter not only your life but also the lives of your descendants. Yet, exposure is contingent on the decisions you make, influenced by a combination of luck and your understanding of technology.

Conversely, consider if you were exposed to the same technological event but had chosen to short Apple stock. You might have believed that Apple had not delivered a groundbreaking product for years, lacking innovation, and destined to fall behind those yellow tied C engineers at Microsoft. And then:

iPhone is a revolutionary and magical product that is literally five years ahead of any other mobile phone


Like any individual using the markets to engage with technological advancements, you faced the same level of exposure. However, your decision was different. By choosing to short Apple, you essentially positioned yourself to be negatively impacted by any positive developments for Apple.

Exposure is multifaceted. It can be definitively or conditionally good or bad. Exposure, in essence, is being present in a situation where you can be impacted either negatively or positively by the unfolding in front of you.

The levantine aura

I got inspired to think and then write about exposure after getting exposed (sic) to the works of Nassim Nicholas Taleb. He is, to say the least, an interesting figure. Taleb could be described as a flaneur. A wonderer whose purpose is to explore and understand modern life through skepticism, mathematics and philosophy.

Taleb's work predominantly revolves around the concept of probability. He delves into how luck influences the markets and business, examining the role of probabilities in socio-economic events. His weapons of choice; philosophy, mathematics and empiricism.

For my apettite, Taleb's work is captivating, and my first encounter with his writings introduced me to some very absorbing concepts.

I like building frameworks that not only incorporate the knowledge gleaned from abstract knowledge but also help me understand the underlying reasons. I am particularly fond of them, as they provide a structured approach to live my life. Which is not ideal. But it definitely helps appease my monkey brain.

NOTE: At that point the author encountered a fat rat running by and lost his concentration. The rat entered a drainage and the author found his lost thoughts, once again.

In this context, let's explore the concept of 'Mediocristan,' a term Taleb extensively uses in his work. To provide clarity for those who haven't read him, let's delve into what 'Mediocristan' represents (always bearing in mind that my interpetation of the term might not be in complete accordance to Taleb's concept - I am not adopting, but rather, borrowing the term) 'Mediocristan' is essentially a metaphorical realm where, although factors like luck, possibilities, and probabilities influence events, there isn't sufficient scope for extreme occurrences. These are events that could dramatically alter the global landscape, catapult a businessman to billionaire status, or transform a writer into a renowned figure.

In this realm, the influence of luck is perceived to be more constrained, primarily impacting day-to-day life without leading to significant, life-altering changes.

In Mediocristan, there are various types of people. For instance, there are bakers. Additionally, to provide a morbid example, consider undertakers. This example comes to mind since, before I started typing these words, I was playing the very interesting game 'A House of Ashes'. Doctors are in Mediocristan, too. People who work in convenience stores. Anyone who really is exchanging their time for some money. People who are providing a service. Or instead of providing services or time, they're building products for others and production can't be infinitely scaled without requiring extra amounts of capital or time for this surplus product to be built.

Now, you have an idea of who operates in Mediocristan. Let's examine who operates in 'Extremistan'. On the land of the extreme, the usual operators, are those who participate in risky or improbable professions or hobbies. They are startup founders, they are bloggers, authors, traders, musicians, singers, actors, anyone really who can produce something that is not required to go through the process of mass production and doesn't require extreme amounts of capital or time in order to be replicated, reproduced, resold, reserved.

A startup founder building a product - building a consumer product, let's say. They don't have to build a product a hundred times for a hundred different users. They have to build the product once. So, they're operating in 'Extremistan', while a baker who might have a hundred customers on a single day, must build a hundred... build, well - they have to bake a hundred loaves of bread. And that is the one separation that you can do in order to understand who operates in Mediocristan and who operates in Extremistan.

Extremistan is influenced in such a way that when a significant event, attributed to chance, impacts an entity, the effects can be dramatic. Consider a startup founder developing a financial app. For reasons we needn't delve deeply into – perhaps an article in a tech forum sparked widespread interest, leading to the app's feature in other media outlets. This exposure results in a surge of downloads, attracting investor attention. Subsequently, the founder successfully liquidates his stake for a substantial sum to a major bank seeking innovative financial tools.

This scenario exemplifies how one might be 'struck by luck.' Interestingly, this founder's success doesn't necessarily stem from the complexity of his operating style or his innate talents. It's likely that, if placed in a baker's role, this startup founder might struggle to bake bread. Conversely, a baker might find it challenging to develop a financial product. Yet, both the baker and the startup founder are hardworking individuals. Their work ethic isn't the determining factor in their exposure to luck.

Both professions operate under the assumption of diligence and integrity. They aren't cutting corners, evading taxes, or engaging in illicit activities. They are hardworking citizens. However, they inhabit different realms, engage with distinct challenges, and pursue different interests.

Holy shit, this place is infested with Patagonia vests

The principle here is that operating in Mediocristan typically yields stable and predictable returns based on the effort invested in one's profession or hobby. On the other hand, in extreme land, the returns on one's efforts are far less predictable and often unstable. Considering startup founders, for instance, the majority do not achieve significant success. If you were to gather a hundred founders from Silicon Valley or elsewhere and ask about their venture's trajectory...well, you would likely hear many framed as success stories.

Startup founders, especially the more skilled ones, are adept at presenting their experiences in a positive light, portraying themselves as the most astute person in the room or their endeavors as groundbreaking. Even in failure, they often highlight how the experience transformed them personally or led to opportunities at prestigious companies.

However, when you get down to brass tax, the reality is that most founders do not achieve the desired outcomes. Despite the millions of startup founders worldwide, only a small fraction can be counted as successful.

Consider the broader spectrum of individuals in the startup world; the reality is that most of them will likely fall short of what the startup community deems a successful founder. Among these many aspiring entrepreneurs, only a handful will achieve exceptional success, the likes of Mark Zuckerberg. If you find my comparison extreme, it doesn't get any better even if I lower the bar. Only a handful will attain success comparable to other multimillionaire or billionaire founders.

Yet, these successful individuals are the exception rather than the rule, representing a minuscule fraction when compared to the total population of startup founders worldwide. If you were to conduct an experiment or a survey among a large group of startup founders, this disparity between the few highly successful founders and the majority who do not reach such heights of success would become evident. This situation emphasizes the notable aggregation of events resulting in outcomes specific to Extremistan. There are no bell curves here.

Can I have some cookies, please?

After you summoned all the founders in a Starbucks you realize that Patagonia vests and Empire State tall egos are not your cup of tea. So you get all the bakers from San Francisco in a room. You start asking each baker about their business. After posing this question a hundred times, it's likely that the responses will mirror the general sentiment of the population regarding living wages and business success, as portrayed by the media. Some of these responses might not even reflect the actual situation, being either exaggerated disappointments or expressions of dissatisfaction about not becoming millionaires through their businesses.

If you follow up with a question about whether they plan to shut down their bakery in the coming months, I'd wager that about 90% would say no. They might acknowledge that their business is sustaining their family adequately, even allowing for purchases like a new car or property. They're managing fine.

This scenario reveals that individuals operating in 'Mediocristan' generally experience more success and stability in their endeavors. They yield more consistent returns from their efforts, regardless of the field they're in. From a financial perspective – the ability to earn money, sustain a business, and establish a personal identity – they're quite successful. A baker, for instance, might not be Elon Musk, or not even renowned for making the best cookies ever, yet they are earning a substantial income, possibly capable of fulfilling their dreams. This comparison highlights the differing dynamics and outcomes between those in Mediocristan and those in Extremistan.

If only for the tip, the Titanic would be in New York City

This leads to the question: why would anyone in their right mind choose to operate in Extremistan?

It's worth considering that some people are drawn to taking risks. They've been fed the narrative that building a company equates to success, or that being a startup founder is a likely path to wealth, which isn't always true. When you're consistently exposed to successful founders – whether in university lectures, lunches, social media platforms like Twitter, Facebook, or LinkedIn – it's easy to believe this is the norm. However, the reality is that you're only seeing the tip of the iceberg. The larger, unseen part of this iceberg represents a vast expanse of failure, with disappointments and setbacks interwoven throughout.

Perhaps we should all be aiming for permanent Mediocristan residency, instead.

This is precisely what we'll explore today: how to leverage the characteristics of Mediocristan and Extremistan to our advantage.

Internal dialogue

Lately, my mantra centers on seeking exposure. I am eager to be exposed to events that harbor the potential to evolve into situations with highly positive outcomes. My current approach involves a meticulous filtering process. The essence of my thoughts and decisions distills down to a set of questions that aid in evaluating whether an impending situation could yield significant benefits for me. My focus is to selectively engage in scenarios that promise such advantageous outcomes.

When evaluating proposals, be they business, investment, or decisions about where and how to spend my productive time, I apply a set of questions. They help gauge the nature of the situation: Is it favorable or not? Is it comfortable? Could it be classified as positive or negative, or is it too complex to categorize? These questions are vital for understanding my tolerance level for existing in a certain environment. They are useful.

Yet, they are not the most helpful.

The ultimate questions to consider are about the potential outcomes of the situation I'm about to enter. Is it expected to yield favorable results? If yes, then it's worth pursuing. If the outcome is uncertain, it introduces a risk that the situation could turn unfavorable. In such cases, it's essential to balance the potential benefits against the risks.

The decision process involves considering the worst-case scenario: I might lose a fortune, my company, my life, or my friends – or it might just be a minor setback, like losing some money or time. On the upside, there's the potential for meeting new people, learning something valuable, or simply enjoying the experience. However, if the situation turns out to be highly favorable, the rewards could be substantial: securing funding for my company, closing a significant contract, or finding personal happiness.

The approach helps systematically evaluate opportunities and make informed decisions about which situations to pursue.

My tendency is often to choose exposure over non-exposure. This leads to an important consideration: why should one seek exposure to events that have the potential to significantly, or even completely, change one's life? The answer lies in the value of consistency.

This approach is particularly relevant when comparing the dynamics of Mediocristan and Extremistan. The key lies in leveraging the stability and predictability of Mediocristan to fuel the pursuit of life-altering opportunities, or 'black swan' events, in Extremistan. In Mediocristan, professions typically involve trading time and skill in return for providing a service or creating a product that can be sold just once. This model of operation raises a critical question: how does one achieve greatness in Mediocristan?

Here, where the economic model is more traditional and less prone to drastic fluctuations, one must consider the most effective strategies for success. This involves a deep understanding of the mechanics of it – the stability it offers and the limitations it imposes – and using this knowledge to strategically position oneself for opportunities in Extremistan, where the potential for transformative events is much higher. This approach combines the best of both worlds: the security of Mediocristan and the high-stakes potential of Extremistan.

Vocational orientation

As previously discussed, hard work is a fundamental component of success in Mediocristan. However, beyond hard work, what's more important for success is the ability to command high prices for one's products or services. This involves developing skills to create premium products, such as custom watches, jewelry, designer clothes, or any item that carries a high price tag and is sold only once. This strategy hinges on the creation of high-value.

Alternatively, if you're in the service sector, the goal is to offer services that are considered highly valuable and cater to clients who can afford to pay premiums. These clients are typically wealthy individuals – the billionaires we mentioned earlier – who have the resources to spend on services that they perceive as beneficial for accumulating more wealth or fulfilling basic needs like luxury, entertainment, communication, and so on.

Let's think of real estate agents as an example. They may not create the products they sell, but they have a unique advantage. They often have exclusive or general rights to market properties, enabling them to negotiate and sell assets they haven’t personally invested in, but rather leveraged their charm, charisma, and network to sell. This is a pretty great place to be in: investing time, communication and personal appeal to handle properties worth millions of dollars.

If you're not inclined towards working with the ultra-rich, such as billionaires or bankers, and you have reservations about capitalists rather than capitalism itself, there are alternative paths to consider. One such option is to offer products or services to corporations.

Reflecting on an article from 2021, it's evident that some companies had such an excess of cash that banks were overwhelmed, especially during the ZIRP era. These companies, despite covering all their expenses, offering substantial salaries, and investing heavily in R&D, mergers, and acquisitions, still had a surplus of cash.

For someone with an eye for opportunities, even if operating from Mediocristan, there's potential to benefit by engaging with these large companies. You could offer your services as an external contractor in various roles – for instance, as an accountant for a football team, or an NBA team. The key here is to position yourself as an important external element in their operations. You're not directly a part of their meat grinding machine; rather, you're like the lubricant in their machinery. This distinction is crucial to remember. By providing valuable services to these large entities, you can carve out a successful niche for yourself without being engulfed by their corporate structures.

The crossover

This is how you can achieve success in Mediocristan and still lead a comfortable life, fulfilling long-held dreams. You also gain the freedom to utilize your time, connections, and financial resources to engage in events occurring in Extremistan. Let's explore how this can be done.

Imagine you're a tech contractor developing software for Fortune 500 companies. In this role, you're trading your time and skills for lines of code, which you then sell to a specific company. You're not in Extremistan, where you could build software and own the rights; instead, you're creating software for others, essentially exchanging your expertise and time for payslips. However, this arrangement pays well, potentially thousands of dollars per day of coding. As a result, you're earning substantial income. Depending on your spending habits, this income can either be conserved or spent liberally. By societal standards, you're considered wealthy.

The income you've accumulated over the years affords you the luxury of taking time off, spending money without concern, or leveraging the connections you've made. These resources and opportunities allow you to experience and expose yourself to events in Extremistan. You're not just confined to the stability and predictability of Mediocristan; you also have the capacity to venture into more unpredictable and potentially rewarding realms.

Continuing with the example of the tech contractor, who's ventures are earning significant income, they can strategically expose themselves to potential life-changing events in Extremistan. We'll explore three methods for this exposure, keeping in mind that events in Extremistan are uncertain in timing, nature, and impact. They could be either positive or negative, but we'll later discuss strategies for tilting the odds towards positive outcomes.

When you have capital, one of the fundamental rules is to invest it. This could take various forms, such as purchasing real estate, or options like index funds or government bonds. These are typically considered safe investments. There are also riskier avenues, like penny stocks, cryptocurrencies, or startup investments.

The latter carry a higher risk of loss; in fact, when analyzed through traditional risk models and economic theories, the likelihood of losing money is almost certain.

However, these high-risk investments represent the essence of exposure in Extremistan. They offer the potential for substantial rewards, albeit with a corresponding level of risk. For the contractor with capital to spare, these investments are a way to venture into the unpredictable and potentially highly rewarding realm of Extremistan.

I hear the delivery guy bringing me chicken dinner

Reaching a point in your Mediocristan experience where you have surplus capital and are less concerned about its immediate return is key for venturing into high-risk, high-reward opportunities. Consider the scenario where you invest in a startup promising to deliver food to your doorstep. While initially it might seem like a stupid idea and you're aware that most startups fail, you decide to invest $10,000 – an amount you're comfortable risking, especially when you've recently purchased a sports car for $100,000.

This investment puts you in a position of significant exposure to what Taleb refers to as a "black swan". You're essentially betting on a socio-economic or unforeseen event that could dramatically boost this company's success. Let's say you made this investment in 2019, just before the COVID-19 pandemic. At that time, the company might have been struggling, as people preferred dining out. However, with the onset of COVID-19, the dynamics changed entirely. With lockdowns and restrictions, people were confined to their homes, and the demand for home-delivered food from favorite restaurants skyrocketed.

This startup, which you invested in, suddenly found itself in an incredibly favorable position. Their business boomed, attracting significant capital, and they began hiring software engineers rapidly to meet the growing demand. The company's valuation soared, transforming the founders into billionaires. Your initial $10,000 investment in a company then valued at perhaps one or two million dollars could now be part of a business worth hundreds of millions, or even billions, as they approach an IPO.

Where the risk of loss is real, the potential for outsized returns can be extraordinary. Such opportunities are the hallmark of Extremistan – unpredictable, scarce, but with the potential for monumental reward.

You could be president

Opening up to the events of Extremistan revolves around identifying your strengths and relentlessly refining your skills. Once you discern where your talents lie, focus on enhancing those skills until you can offer a high-value service or create a product that can be sold at a premium. It's these high prices that will open doors to the world of extremes.

One way is through direct investment – writing a check to back a venture you believe in. Alternatively, you might decide to take a break from your regular Mediocristan activities to start your own company. While the likelihood of failure is high, the slim chance of a breakthrough success could potentially catapult you into the ranks of billionaires. Another approach is leveraging your network to access environments where transformative events are more likely to occur.

Politics is one such arena. When you observe politicians, consider whether their success is due to extraordinary talent or extreme luck. Often, it's the latter. Their early decisions to engage in politics, coupled with a willingness to navigate its murky waters, have positioned them in roles of influence. Such is the nature of extreme land – where risks, bold moves, and a ton of luck can lead to extraordinary outcomes.

Don't leave the cinema early

This pursuit isn't about a fleeting engagement with high-stake opportunities. It's not just about buying a ticket, watching a part of the show, and then leaving. The strategy involves a persistent presence in the realm of extreme possibilities, revisiting it as often as necessary throughout your life. Success in this sphere can be unpredictable – you might find your moment of extraordinary luck at 70, much like Colonel Sanders did with KFC, or you might be a Mark Zuckerberg, creating a billion-dollar enterprise from your college dorm.

The critical message here is to consistently expose yourself in environments where extreme opportunities are present. Show up in the world of extremes and stay engaged. While doing so, remember to safeguard your well-being. It's about balancing the pursuit of high-risk, high-reward opportunities with a mindful approach to your overall safety and security. This approach is about endurance and presence, being there persistently until the right moment strikes.

⚠️ I spend most of my time in bubbles: Be very careful when reading and practicing what has been written here.

Tags: life, probability

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