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There are a handful of universal life principles that appear in every endeavor.
For example:
If you stay consistent at something, you will get better at it.
You’re more likely to succeed if you work hard than if you don’t.
Experience makes you wiser.
These are universal truths regardless of who you are, where you are, and in what time period you live in.
There’s one other principle that once you “get” it will change how you approach everything.
That principle is risk taking.
You can call it survival instincts, societal conditioning, or the fact that a small minority of people are “built different,” but the vast majority of Western society lives in a low-risk, low-reward state.
Before people get offended, we’re not saying you don’t have real problems (financial or otherwise). In fact, these problems (or fear of them) are exactly what drive people into low-risk mindsets.
Owl story time.
Early in my career in finance I was interviewing with a hedge fund. After an onslaught of technical finance questions, the interview was reaching a close.
The last question they asked me that day was: what’s the biggest risk you’ve taken?
Perhaps it was the 90 minutes of twisting and turning questions aimed at finding the limits of my knowledge, but for a moment there I was stumped.
I gave some off the cuff answer about some financial risk I took. Frankly, I don’t remember exactly what I said, but I know it wasn’t anything I considered truly risky.
I got the call back to move forward. But. The question continued to eat away at me.
You see, nothing came to my mind as feeling like a real risk. After days of thinking about the question, I still had nothing.
Sure, there are some risks you face simply by way of your participation in society such as what college you choose, what city you accept a job in, and so on. But I consider those risks to fall in the “low stakes” category.
The reason I couldn’t stop thinking about this interview question is because I realized that I never once felt like I had taken a major risk. I had optimized for a dependable, high expected value path. Good “risk-adjusted” decisions.
As I’ve gotten older, I’ve come to realize that risk-taking is not only inherent to life, the world’s best in any endeavor are elite, high stakes risk-takers.
You take little risks every day.
Consider a sports analogy.
Every time you put up a shot on the basketball court, you’re taking the risk that you miss and your opponent scores on you.
These little risks add up and if you don’t follow through, they can cost you the game.
If you don’t take any risks at all, you don’t get shots up, which means you had no chance of winning in the first place.
You have to put up shots and take the risk that you might miss (and get benched).
“Real risk” in a sports context only applies to actual games. It does not apply to practice.
You can “simulate” and “model” situations all you like, but it’ll never replace taking actual risk.
The problem? Real risks have real consequences.
This is where asymmetry comes into play. A player might be a great shooter, but shot quality can have a huge impact on the outcome. You are taking the same risk (losing possession of the ball), but an open shot is a better risk than a defended one.
In basketball, the best players are often tasked with handling the most high risk and high reward situations (4th quarter game 7 NBA finals).
It’s the person who can lead the team to victory in situations of high risk who is most highly respected and rewarded.
The same is true for investing. Taking risk and winning is the whole game.
You have to put on risk to get better. This is a universal principle of life. Gut wrenching experiences are a prerequisite to outsized success.
If you just want to live a normal life, then you can go ahead and ignore everything we said.
But we’re of the opinion that no one who achieves great heights can do so without being an elite risk taker.
We can’t get on the court and take your shots for you.
You come to us to know what happened, get prepared for the next game, and look at what other teams are looking at. We help you improve by highlighting common blindspots.
Seek out your blindspots.
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