Ep.40 - Can We Become Successful Without Taking Big Risks? (3 Minute Read)
Read Time: 3 Minutes
I have been a long term listener of the Podcast: Freakonomics. The episode from 1/17/2018, "What Does A C.E.O Actually Do" ( you can listen it below), was particularly enlightening. It's interesting for one reason, and one reason only. It helped me understand how successful people became successful, in a way I've never thought about before: risk taking is a necessity, but not a guarantee.
To save you some time, this quote from the episode is the key takeaway regarding how to become successful:
"Imagine there are two types of C.E.O.’s. There’s the boring ones and the ones that take huge gambles. At the beginning of their career, the boring ones plod along but they never make it to the top. Of the huge gamblers, some of them win early on. They get promoted. They gamble again, some of those win again, and they get promoted, and they gamble again. At the end of it, you can see of the big gamblers very few make it, but those that do get to the top. Being a C.E.O. is horribly selected on having taken a lot of big bets in the past and then successively paying off."
EVERYONE IS IN ONE OF THESE 3 GROUPS
THE NON-RISK TAKERS (~90% of us): DON'T TAKE BIG RISKS, HENCE NO BIG SUCCESS IN SIGHT
- Disportitional Pain of Losing: This group describes the vast majority of the us, including myself. The most of us follow a beaten path, and value stability/comfort over risk taking. Why? We hate the feeling of losing, as we associate it with pain, often a disportionately amount of pain to its actual loss. For example, if you've ever receive a parking ticket, you know this terrible feeling, even if it's not a devastating amount (it's $73 here in L.A.). The same applies if you ever lost any money in stocks, in the sense that losing $100 has a much worse feeling than gaining $200.
- No Pain No Gain: It is almost silly to write it out. We can't reasonably expect success if we don't go the extra mile. It is just like I can't get fit if I don't actually exercise.
THE SPOTLIGHT HEROES (1% of us): CONSISTENTLY TAKE BIG RISKS, AND HAVING THEM PAY OFF
- Risk + Effort + Chance: This already only describes a small circle of people. Taking risk alone is not enough. In order to get there, one needs to actually 1) take risks, 2) put in the effort to improve the chance of succeeding, and 3) having these big bets pay off.
- Effort Improves Chance From Impossibility to Low Probability : In my opinion, effort significantly improves one's chance of succeeding, probably from a scale of astronomical impossibility, like the state lottery (1 in 260 million) , to a much improved chance of a rigged fair game (something like 1/30). What it mean is that, with all the best effort and skills, I strongly believe one still have a lot of room to fail.
- Chance: Chance, to me, represents all the right conditions, that one can't influence. It could be the right time, at the right place. Given with all our effort, we can only improve our chances from impossibility to a low probability, luck separates what I call "the spotlight heroes", whose risks pay off, from those "failed heroes", who also put in their efforts, but failed.
THE FAILED HEROES (~10% of us) : CONSISTENTLY TAKE RISKS, BUT NOT ALL BETS PAID OFF
- Done everything right, but all bets paid off: I think this group represents the unsung heroes. They could've done everything right, by taking big risks, and putting in the right effort, which resulted in a human limit of "low probability", before chance kicks in.
- They are destined to succeed if they repeat over and over: It sounds silly to say. But this group can eventually enter the group of the spotlight heroes, if they repeat again and again. For example, Jack Ma ,Ray Dalio and Elon Musk have both failed to the brink of total collapse, before they become the heroes of nations.
MY TAKEAWAY: MAKE BIG UNCORRELATED BIG BETS
I fundamentally believe one has to make big bets in multiple areas, because even with the best skills and effort, one can only achieve a low probability of success in any one area. When making a big bet, it is just impossible to know it will pay off with certainty. Interestingly, this point is also exactly what Ray Dalio preaches in this book, Principal, where he firmly believes taking big uncorrelated (and educated) risks is his strategy to consistently beat the market.
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