Admission Open for My Value Investing Workshops (Offline): I’m excited to announce admissions to my upcoming in-person value investing workshops in the following cities:
- Bengaluru – Sunday, 13th July 2025
- Hyderabad – Sunday, 27th July 2025
- Mumbai – Sunday, 10th August 2025
Click here to know more and book your seat.
Seats are limited in each city. The first 20 participants can claim an early bird discount.
While flipping through a few of my old notes, I stumbled upon a thought from Nassim Taleb that struck me again with its wisdom. He was explaining the concept of path dependence, which is a phenomenon where outcomes are not just a function of present conditions, but heavily shaped by the sequence of events that preceded them.
Taleb used a metaphor to explain this idea:
Ironing your shirts then putting them in the washing machine produces a different outcome from washing your shirts first, then ironing them. The reader can either trust me on this, or try the experiment with both sequences on the next Sunday afternoon.
He then applied that same thought to money:
Assume that your capital is around one million dollars and you are involved in speculation. Making a million dollars first, then losing it, is markedly different from losing a million dollars first, then making it.
In the first path (make, then lose), you’re at least alive to fight another day. You may end up with less, but you’ve tasted survival. In the second path (lose, then make), you may never even get to the “make” part. Because losing early can leave you bankrupt, broken, demoralized, and most importantly, unable to stay in the game.
And if you’re out of the game, the rest of the path no longer matters.
This is where Taleb’s insight dovetails with Warren Buffett’s much-repeated Rule No. 1: “Never lose money.” Because if you lose too much too early, it doesn’t matter what brilliant investment lies ahead, you simply won’t have the chips left to play.
Now think about today’s stock market. More people are treating it like a casino than ever before. Fuelled by zero-commission trading options, social media hype, FOMO, and easy money narratives, investing has become less about compounding wealth over time and more about hitting jackpots. Many new investors aren’t even reading the rulebook. They’re rolling dice with leverage, momentum-chasing, options-trading, and trading in and out of stocks like they’re changing tables at a casino.
Now, to borrow a point from my good friend Anshul’s tweet, I won’t place the blame entirely on them:
This is what makes the situation even more fragile. For many, as I agree with Anshul, derivatives or mindless trading isn’t really about making money, at least not sustainably. It’s seemingly a kind of self-medication for uncertainty. A temporary thrill. A shot of dopamine to escape deeper fears.
Still, the irony of all this (mis)behaviour is that most don’t realise the game they’re in has no exit signs. They’re walking into a psychological trap laid by the illusion of control. And that’s precisely what Taleb warns us about: just because the roulette wheel turned up red ten times doesn’t mean you’re due for black. The sequence matters. So does timing.
Two Books. One Purpose. A Better Life.
“Discover the extraordinary within.”
—Manish Chokhani, Director, Enam Holdings
“This is a masterpiece.”
—Morgan Housel, Author, Psychology of Money
Now, here’s what it means for your portfolio:
Consider two businesses.
- Company A has a clean balance sheet, generates consistent free cash flows, requires little external capital, and can afford to absorb shocks. It’s built to survive bad times. Even if the market turns against it, it might lose temporarily but it can stay in the game.
- Company B, on the other hand, is financially fragile as it has high debt, thin margins, and constantly on the edge of survival. A single prolonged downturn can crush it. It doesn’t have the luxury of a second chance.
So, what’s the difference? Company A may be on the make, then lose path. It has something to lose, but also the capacity to suffer and recover. Company B starts from the lose, and that’s often the end of the story.
Now, path dependence is not just theory. It’s everywhere in markets.
- A startup that burns through capital without a product-market fit is path-dependent. If it fails early, no later pivot will matter.
- A leveraged trader who blows up their account in a crash may never return to the market, even if their later ideas are sound.
- An investor who panics in a down market and sells their long-term compounding stocks at the bottom locks in a path that permanently destroys wealth.
When you invest, think of path dependence not just in terms of business health, but in your own ability to stay in the game. Are you betting in a way that allows for mistakes and still leaves you standing? Or are you playing a game where one wrong move can knock you out?
Taleb’s deeper insight here is brutal but honest: Survival comes first. Without it, nothing else matters. Most speculators today are blinded by recency bias and short-term dopamine. They don’t realise that real investing success is path dependent.
So, ask yourself honestly: what are you holding in your portfolio today? Are these “make, then maybe lose a bit but survive” businesses? Or are they “lose first, and then lose everything” bets dressed up as “hot” opportunities?
Discard the latter. Stick with the former.
This is simply because markets have a way of reminding us, often harshly and without warning, that sequence matters more than we think. Especially when you’re risking your future on games that only look like investing but operate more like Russian roulette.
