There’s No Reward Without Risk

Smart people talk themselves out of potentially life-changing opportunities all the time because they try to eliminate risk.

I know this because I’m one of them. I’m constantly inverting opportunities to see how they could blow up in my face… and then I often pass.

Inversion is helpful up to a point. It’s always important to look at the downside. But smart people attempt to eliminate risk entirely by thinking it up, down, and sideways until their head spins.

No matter how much analysis you do, there is no reward without risk. Nothing comes for free.

To get rich, you need an appetite for risk.

You won’t get rich by working for someone else. You need to own equity in a business, product, intellectual property, patent – whatever. It doesn’t matter what it is, as long as you own a piece of it.

And there’s risk involved in any business venture simply because when you own equity, you own the upside and the downside.

In his podcast series, How To Get Rich, Naval Ravikant tells us that when you’re an owner, you get paid after everyone else. That’s great if the business is profitable. But if there’s nothing left of the pie by the time you’ve paid all your expenses, debts, and employees- too bad. You get nothing. There’s no ownership without risk.

And Maxim founder, Felix Dennis, writes in his book, How To Get Rich: One of the World’s Greatest Entrepreneurs Shares His Secrets:

Risk equals reward. “An honest day’s work for an honest day’s pay” is not risk-taking… The earlier you start and the more risks you are prepared to run, tempered by listening hard and choosing the right mountain… the more certain it is that, sooner or later, you will find yourself with a small success on your hands. And one success, with luck, will lead to another.

Charlie Munger thinks the same way. In Warren Buffett’s biography, The Snowball, Buffett recounts that Munger “had the attitude that if you weren’t already rich, you could afford to take some risk—if the odds were right—to get rich.”

There’s no reward without some level of risk.

A regular salary fills your stomach with one-dollar bills.

Nassim Nicholas Taleb has a famous phrase that goes as such:

The three most harmful addictions are heroin, carbohydrates, and a monthly salary.

You won’t get rich working for someone else. And even worse, the monthly salary will dull your risk-taking appetite by filling your stomach with just enough money to get by comfortably.

You don’t know what you’re capable of until your back is up against the wall. With a steady income for years, the fire in your belly will first turn to embers… and then go out entirely.

Felix Dennis agrees:

The salary begins to have an attraction and addictive-ness all of its own. A regular paycheck and crack cocaine have that in common. In addition, working too long for other people can blunt your desire to take risks. This last factor is crucial, because the ability to live with and embrace risk is what sets apart the financial winners and losers in the world.

Overanalyzing risk won’t get rid of it.

You can’t think risk away. You can’t discuss it away. No matter how intensely you analyze the downside, you can’t get rid of it.

Entrepreneur and investor Marc Andreessen uses a “Red Team,” whose purpose is to argue the other side of any investment opportunity. This team comes in to think up all the ways the idea could fail. And yet Andreessen and his team make investments anyway.

You have to be smart but also brave. Felix Dennis writes:

There is nothing wrong with robust debate, either with others or with oneself. What is undesirable, however, is the pretense that any such debate can resolve the risks involved in advance. It cannot. All debate can do is clarify, support or contest the next step. The risks remain, however much talking is done.

You can’t eliminate risk, but you can watch the downside very closely.

You are looking for asymmetric opportunities – ones where the upside of the opportunity is much greater than the downside. You’re looking for scenarios and investments where “heads, I win; tails, I don’t lose much!” as Mohnish Pabrai likes to say.

My building this site and releasing an article weekly is an asymmetric opportunity with high reward and low risk. I’ve turned nothing into an audience of thousands with minimal downside. The same goes for anything you’re creating.

The smaller the downside, the faster you should move to take advantage of the opportunity. The larger the downside, the slower you should move to avoid unnecessary mistakes.

There are fewer opportunities than you think.  

While life-changing opportunities come to all of us, they don’t happen very often. You need to jump on anything that looks remotely like an opportunity. Look for small wins. And when you get one, do everything you can do to keep the momentum going and transform it into a big win.

We are looking for positive Black Swans: huge, life-changing, rare events. But to get a huge win (like closing a book deal, selling a movie, selling a website or product, etc.), you need to be exposed to the possibility of it happening.

Nassim Nicholas Taleb writes in his book, The Black Swan: The Impact of the Highly Improbable:

Remember that positive Black Swans have a necessary first step: you need to be exposed to them. Many people do not realize that they are getting a lucky break in life when they get it… I am sometimes shocked at how little people realize that these opportunities do not grow on trees.

Don’t be one of those people who miss an opportunity because you weren’t paying attention. And when you hit one something big, people will call you “lucky.” Here’s what Dennis says about that:

Chances come to everyone in life, in all shapes and sizes, often disguised, and more often radiating risk and potential humiliation. Those who are prepared to analyze the risk, to bear the humiliation and to act in deadly earnest—these are the “lucky” ones who will find themselves, when the music stops, holding a potful of money.

There’s no reward without risk.

At some point, you need to analyze and act despite the risk. If the payoff is large enough, boldness helps you more than it hurts you. As Felix Dennis writes:

Boldness? The most successful generals or admirals in military history shared one characteristic: they were willing to ignore orders and risk utter disgrace in order to exploit rapidly changing circumstances. When the chance came, they recognized an opportunity, weighed the odds swiftly and placed their lives and careers on the line to snatch a victory.

Start now.

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Dennis, Felix. How to Get Rich: One of the World's Greatest Entrepreneurs Shares His Secrets. Penguin Publishing Group. Kindle Edition.

Schroeder, Alice. The Snowball (p. 220). Random House Publishing Group. Kindle Edition.

Taleb, Nassim Nicholas. The Black Swan: Second Edition: The Impact of the Highly Improbable (Incerto). Random House Publishing Group. Kindle Edition.