The Less You Have, The More Risk You Can Take
“The wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time, they don’t. It’s just that simple.”
The less you have, the more risk you can take because it's all upside.
This doesn’t mean you can rush it. Any “get rich quick” scheme is doomed to fail because if it were easy to build wealth quickly, everyone would do it.
But it does mean that if you see a bet with good odds, you should be as aggressive as you can - get as much leverage and capital as you can into the opportunity - and shoot your shot.
If The Odds Are Right, Be Aggressive.
A young Charlie Munger - Warren Buffett’s partner at Berkshire Hathaway - leaned into the idea that if you were young and weren’t already wealthy, you could afford to take on a bit more risk to get rich.
Here’s an excerpt from Buffett’s biography, The Snowball:
“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. His audacity put him in a different category from all the others who cultivated Buffett, for his deference to Buffett was limited by his high opinion of himself.”
Warren Buffett’s only rule of investing is don’t lose money. This is what separated Munger from Buffett in the early days of their partnership.
While Buffett was obsessed with protecting his capital, the older Munger was willing to take on a bit more risk to get rich because he desperately wanted what it came with: independence.
“Like Warren, I had a considerable passion to get rich, not because I wanted Ferraris – I wanted the independence. I desperately wanted it.” - Charlie Munger
I’ve written a lot about how wealth creation is the pursuit of freedom of your time. It’s not about fancy cars and yachts and vacations. It’s about creating a life you don’t need a vacation from. That’s why the pursuit is worthwhile.
And if you’re starting from zero, you’re in a better position than you think!
If You have Nothing, You Have Nothing To Lose.
Felix Dennis was the founder of Maxim magazine. He writes in his book, How To Get Rich, that the young, penniless, and inexperienced by far have the best chance of getting rich. Here’s why:
“You have an advantage that neither education nor upbringing, nor even money, can buy—you have almost nothing. And therefore you have almost nothing to lose.”
Having nothing to lose is your most important asset. Your risk is almost nonexistent. If you fail financially, you have nothing, which is the same position you’re in right now.
If you’re young, you likely have no mortgage to pay, no family to support, and lots of time to figure out what to work on and who to work with for the next decade. This makes you flexible and powerful. Your upside is many times greater than your downside.
Things become muddy when you have a little to lose. I’m currently in this position. I’ve made enough money to pursue a series of creative bets under my own name. But I’m already over 30. My lifestyle has crept up with my salary, so I’m accustomed to living a certain way. I have something to lose.
It’s not stopping me, though. I left my salaried position in January of 2021 to go out on my own. And we’ll see what happens!
The Best Bet Is The Bet On Yourself.
At some point, you have to bet on yourself. And this means taking on accountability under your own name.
In one of my very early articles called, Brand Your Name To Build Wealth, I write:
“When you work for someone else, the goodwill around your name - your most important intangible asset - is associated with the company you work for.
The solution is to build your own personal brand in conjunction with the company so that you can leverage it to create wealth. A brand is a unique combination of skills, traits, qualities, or even products that can be summarized under one heading. If you don’t own another business that you are known for, your brand is your name.”
Since I wrote this, Wealest has become a big part of my personal brand. I’m the guy who writes about the mental models of wealth creators. And now, I’m finally starting to put into practice what I’ve learned.
As Naval Ravikant says, you won’t get rich renting out your time to someone else. You must take on accountability, leverage, and equity. You must take risks under your own name. Here’s Naval explaining this on his How To Get Rich podcast:
“You have to build up credibility and you have to do those under your own name as much as possible, which is risky. So accountability is a double-edged thing. It allows you to take credit when things go well and to bear the brunt of the failure when things go badly.
People who are stamping their names on things aren’t foolish. They’re just confident. Maybe it turns out to be foolish in the end, but if you look at a Kanye or an Oprah or a Trump or an Elon or anyone like that, these people can get rich just off their name because their name is such powerful branding.”
When you are accountable under your own name and have equity in what you are building, you own the upside AND the downside. If things go badly, you’re on the hook.
This means that while you need to be aggressive, you must stay in the game. You have to watch the downside very closely and make sure that you survive to play another hand if things go wrong.
You Must Avoid The Risk Of Ruin.
The less you have, the more risk you can take. But, you still need to avoid ruin.
You can’t get rich if you’re in jail or living on the street or suffering from a life-crippling addiction.
I use the Kelly Criterion as a reminder to keep from betting everything I have in one go. It’s a mental hook to keep you from going back to zero. And that doesn’t just mean going bankrupt - there are many other ways to “lose.”
Here’s Naval again:
“The one thing you have to avoid is the risk of ruin. Ruin means stay out of jail. So, don’t do anything that’s illegal. It’s never worth it to wear an orange jumpsuit. And stay out of total catastrophic loss. That could mean that you stay out of things that could be physically dangerous, hurt your body. You have to watch your health. And stay out of things that can cause you to lose all of your capital, all of your savings. So, don’t gamble everything on one go. But take rationally optimistic bets with big upside.”
The key is to swing when you have a rationally optimistic bet in your circle of competence. Don’t make big bets when you don’t have a clear advantage.
And don’t risk ruin. Ever.
Thanks for reading, and keep going.
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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.
Naval Ravikant: How To Get Rich: Every Episode
Schroeder, Alice. The Snowball. Random House Publishing Group. Kindle Edition.