MandelbrotThere are two types of stability: passive and active. Most people don’t understand the difference until it’s too late. Passive stability requires no intervention.
A ship in the ocean is passively stable. The captain can take a nap and the power can go out and the ship will still ride out the storm. Active stability is different.
Active stability requires constant intervention. A modern jet is actively stable. It has little inherent stability without constant intervention.
Passive stability means you are default alive without an intervention. Active stability means you’re default dead unless there is an intervention.
It would be reasonably safe to be default dead if you could count on the things you need. In practice, the kindness of strangers tends to run out just when you need it most.
Consider borrowing money. Borrowed money makes you default dead. That’s not to say you shouldn’t use leverage, but it is to say that you should consider how you approach it. A lot of things must go right if you invest money you don’t have in something that gets marked to market every day. While you might be right in the long term, it doesn’t matter if you can’t survive the short term. Another consideration people often miss is considering the stability of their counterparty. If they need money at the very moment you need money, you’re both in trouble. You never want to put yourself in a position where circumstances overtake you.