No Medium Risk
The Situation
You’re trying to find a “medium risk investment” – something with a good return opportunity and a lower chance of losing money. Does it exist?
The Play
Recognize that all investing is taking risks, none of which are medium. Your best move is to try to understand the type, magnitude, and probability of the risk you’re taking in order to create more upside variance in the things that matter.
What’s the downside of the decision?
What’s the upside of the decision?
What’s the price you pay?
Pick your non-negotiables, work to minimize the cost, and tilt the range to the right.
Go Long
New Essay: There Is No Medium Risk
“So if everything can go to zero, including not doing anything at all, we think you should only bet on things that have the optionality to go really, really well if they work.”
Throwback: Risk, Return and the High Wire Act
“Risk is tricky. It’s always in the background and underneath the surface, lurking and waiting. Ignore it and you’ll probably be fine - until you’re not. And when that happens, watch out, you’re likely in a world of trouble.”
Go Deep
Curiosity sparked? We've put together a list of resources on knowing the risks you’re taking and uncapping upside variance.
Risk Revisited, Again (Howard Marks)
+A meditation on what risk really means in light of an unknowable future – and how to cope with that uncertainty. Also, more on the many, many forms of risk. “Here’s the essential conundrum: investing requires us to decide how to position a portfolio for future developments, but the future isn’t knowable…How can investors deal with the limitations on their ability to know the future? The answer lies in the fact that not being able to know the future doesn’t mean we can’t deal with it.”
What Are the Odds of Making a Good Investment (Behavioural Investment)
+What happens when a pool player who lives to be good at pool meets a pool player who lives to set the odds in his favor? Why (and how) to think about the odds of positive outcomes. “Thinking about odds and probabilities is not intuitive and often uncomfortable, but it should be essential for all investors. It is far better to be an average investor with the odds on our side, than a good investor with the odds stacked against us.”
Tom Brady, Howard Marks, and Risk-Taking (The Daily Coach)
+On doing the unexpected and generating superior results: “What Brady and Marks have done to be successful, thus sustaining unparalleled excellence in their respective fields, is to be different, to be willing to go against the norms of their peers, and to take risks with a fresher, unique approach.”
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