Playing the Bar Bell Strategy

The business of creative work is the business of riding randomness. If you want to write a bestselling book or launch a revolutionary company, you’re going to need luck. You’re navigating Extremistan, not Mediocristan, as I talked about in episode 253. How do you increase your chances of having a hit without risking everything? You do it with “The Barbell Strategy.” You can use the Barbell Strategy in many areas of life and work.

The Barbell Strategy defined

The Barbell Strategy is introduced in Nassim Taleb’s The Black Swan, which I summarized on episode 244. The Barbell Strategy protects you from catastrophic losses that can take you out of the game. Meanwhile, it gives you chances to make big gains.

Why “barbell”?

Think of a barbell – a very lopsided barbell. On one side of the barbell is a big weight. On the other side of the barbell is a small weight. In the middle is the thin bar that connects the two.

The Barbell Strategy is an investment strategy

Taleb introduces The Barbell Strategy in an investing context. This is the strategy Taleb has used as a financial trader. As we’ll see, you can apply it to other areas as well.

Taleb says:

If you know that you are vulnerable to prediction errors, and if you accept that most “risk measures” are flawed, because of the Black Swan, then your strategy is to be as hyperconservative and hyperaggressive as you can be instead of being mildly aggressive or conservative. (emphasis mine)

In other words, you have to accept that the world is full of Black Swans. As a review, Black Swans are outlier events with extreme impact. We think we can explain Black Swans after the fact, but we really have no idea. They can be positive, or negative. Things like financial market crashes or mega-best-selling books. By being hyperconservative, you avoid the negative Black Swans. By being hyperagressive, you expose yourself to positive Black Swans.

85% hyperconservative investments, 15% hyperaggressive investments

Most people go with the “safe” investment. I’m not a financial advisor, and nothing I’m saying is investment advice, but for most people, that’s the index fund: Keep putting money in an S&P 500 ETF. Expect to get a 7% return over your lifetime.

The strategy Taleb espouses is to avoid so-called “medium risk” investments. Instead, put 85% of your portfolio in hyperconservative investments – places where you won’t lose money. Invest the other 15% of your portfolio in hyperaggressive investments – places where you might lose your money, but where there’s also no limit to how much money you could make.

When you’re invested in the index fund, your entire portfolio is exposed to Black Swans. The stock market dropped nearly 90% during the Great Depression, and swift drops of 30 or 40% are not uncommon. If 85% of your portfolio is spread across hyperconservative investments, you’re unlikely to need to weather such storms.

With 15% of your portfolio in hyperaggressive investments, you can only lose 15% of your money. Meanwhile, there’s no limit to how high those hyperaggressive investments can go. Imagine you put 1% of your net worth in Bitcoin five years ago. Multiply that by 100, and that’s your current return. Even if you lost all the other 14% of your net worth in hyperaggressive investments, you would have nearly doubled your money, with little downside risk.

The Barbell Strategy in creative work

As you learned in episode 253 about Mediocristan vs. Extremistan, creative success is unpredictable. As award-winning screenwriter William Goldman said, “Nobody knows anything.” Most creatives expect their success to go “up and to the right.” When someone suggests they take some chances, to justify not taking those chances they abuse survivorship bias – as I talked about on episode 251.

So they stick to “the middle.” They do the thing they feel will get them a little success. For authors, this is the strategy of cranking out a formulaic novel every month that’s sure to sell some copies – but for which nobody is ever going to camp in line outside a bookstore to be the first to get. Maybe they make the graph go “up and to the right,” but they’ll never have a breakout success.

Find some “sure bets” – protect your downside

To play the Barbell Strategy in creative work, first, you need to find some sure bets. Protect your downside, so you can stay in the game. Remember on episode 251 when I told you about my poker-player friend who needs a certain “bankroll” to make $100 an hour? That’s what you need. You need some room to explore long enough to let ergodicity take over.

That could be a literal bankroll. I personally invested a lot when I had a secure job, knowing that some day I’d use the bankroll as runway to start something on my own. Some creatives like to have a secure day job, and spend a little time creating before or after work. Anthony Trollope and Charles Bukowski worked at the post office. Octavia Butler’s many jobs included potato chip inspector. Comedian Mark Normand was a janitor, which allowed him to think about his bits while he worked.

When I first started on my own, after I had gone through savings I had bookmarked for exploration, I spent ten hours a week freelancing – the rest of the time I spent building passive income streams. I told you on episode 214 how one passive income stream made me $150,000. I now live in Colombia, where my three-bedroom apartment costs less than $700 a month – which takes off a lot of financial pressure.

To play the Barbell Strategy, you need to protect your downside. There are no guarantees in life, including life itself – so this means something different for everyone. Figure out what it is for you.

Play some “wildcards”

Now, play some “wildcards” (Note that “sure bets” and “wildcards” are my own terms. Taleb hates gambling analogies because in gambling the actual odds are known – but you get the idea.)

Wildcards are things that – as Seth Godin would say – “might not work.” In fact, they probably won’t work – but they have unlimited upside potential. They’re the “asymmetric opportunities” Tynan talked about on episode 145. “Asymmetric” refers to the risk profile: The potential downsides are small, but the potential upside are huge. The profile is not symmetric, it’s asymmetric.

For example, it costs little to write a blog post. You have little to lose, but you may gain a lot. I’ve written many hundreds of blog posts in seventeen years. Two of those have led to positive Black Swans: One got me my first book deal, and catapulted my status online from nobody to somebody. Another got me an advisory position with a company that sold to Google, and became the subject of my latest book. Numerous others brought smaller benefits, but I can’t think of any I regret.

Your wildcards have a chance to become positive Black Swans. You can’t predict what will work, so make lots of small bets with unlimited upside.

Avoid “the middle”

Finally, avoid “the middle.” There’s a few reasons for this.

One, the middle is crowded. As restauranteur Nick Kokonas said on episode 213, most people aren’t as afraid of failure as they are of success. They want to do okay, but they don’t want to do great. At the same time, we have a loss-aversion bias. We hate losing an investment twice as much as we enjoy gaining from an investment. So, everyone goes for the middle. And there’s more competition in the middle.

Two, the middle is where the negative Black Swans happen. You’re only investing a little in the wildcards, so you can afford to lose it all. We tend to go all-in on the middle, so when an unexpected catastrophe happens, we lose a lot.

Three, the middle has little chance of bringing positive Black Swans. Your index fund is supposed to return 7% a year. It could lose 40% of its value in a day or two. Meanwhile, does it have any chance of gaining 1,000% just as fast? Very unlikely.

What’s hot is usually “the middle”

Look at what is hot in your field, and you’ll probably find “the middle.” In writing, it’s churning out formulaic fiction series for Kindle Unlimited. In blogging, it’s making sure you’re sharing every blog post to every social media channel. In SEO, it’s manufacturing mediocre articles on high-volume keywords you have little chance of ranking for. In SaaS entrepreneurship, it’s A/B testing to make minuscule gains in conversion rate. Some of these things might bring a little progress, which is why people do them, but they have no chance of big upside.

Avoiding the middle protects your downside, and gives you a chance for more upside. With less invested in the middle, you can invest more in the wildcards.

The Barbell Strategy in other areas

The Barbell Strategy is useful in investing, and it’s useful in creative work. If you look around, you can also apply the Barbell Strategy to other areas.

The Barbell Strategy for exercise

“The middle” for exercise is steady-state, medium-intensity, training. Taleb himself is an advocate of doing power lifts, as heavy as you can. This certainly exposes you to upside, but I think it also exposes you to the downside of injury.

I think the true Barbell Strategy for exercise is Body by Science, which I summarized on episode 160. It’s a very intense and short protocol, with little chance of injury. Other than that, go for long walks or do physical activities you enjoy.

The Barbell Strategy for technology use

You can apply the Barbell Strategy to your technology use. Some technology exposes you to potential serendipity. Surfing around on Reddit or social media is fun, and you never know when you’ll happen across a breakthrough idea. But like a risky investment, it’s risky to spend all your attention in these areas.

The “sure bets” in technology are to use specific tools for the job you’re trying to get done. I talked about “grippy” and “slippy” tools on episode 230. If you’re a writer, get an AlphaSmart, or a typewriter for the initial brainstorming phases of your work. High-powered technology such as smartphones and laptops can be sure bets, too. But just use them for short bursts for specific tasks.

What you want to avoid is the always-on use of the highest-power technology available. If you’re always glued to your smartphone or laptop, you’re connected to the internet, but you’re disconnected from your own mind. You can’t use technology without technology using some part of you. Marshall McLuhan, whose book, Understanding Media, I talked about on episode 248, would say that as technology extends, it also “amputates.”

Another “wildcard” for technology is to not use technology at all. When I took Naval Ravikant’s meditation challenge, which I talked about on episode 246, I found that during meditation I thought more about asymmetric ideas, which I later implemented when I was using technology.

The Barbell Strategy for time management

You can apply the Barbell Strategy to time management. “The middle” is trying to get the most done in the shortest time. It’s being on clock time instead of event time, like I talked about on episode 235.

The “sure bets” for time management are to have clear priorities, build habits, document processes, and automate what you can. These tactics help you use time and energy more effectively, without stressing you out and disrupting your creativity.

The “wildcards” for time management are mostly the opposite of the sure bets. Meditate, daydream, go for walks, take naps, tinker, play, and discuss. As Taleb says, “Go to parties!” Instead of having clear priorities, spend time on “anti-priorities”: Things that don’t seem important, but that you want to do anyway.

What you want to avoid is the stuff most people try to do to “save time”: full schedules, tight deadlines, last-minute crises, mindless outsourcing, and complexity creep. These tactics lead to negative time Black Swans: When one thing goes wrong, everything collapses, you lose time, and stress yourself out.

Live the barbell life

Let’s close with a quote from Nassim Taleb:

I will never get to know the unknown since, by definition, it is unknown. However, I can always guess how it might affect me, and I should base my decisions around that.

To apply the Barbell Strategy to any area of your life and work, avoid the middle, find sure bets, and play some wildcards. It’s the best way to stay in the game long enough to get lucky.

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About Your Host, David Kadavy

David Kadavy is author of Mind Management, Not Time Management, The Heart to Start and Design for Hackers. Through the Love Your Work podcast, his Love Mondays newsletter, and self-publishing coaching David helps you make it as a creative.

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Show notes: http://kadavy.net/blog/posts/barbell-strategy/