Two Strategies for Spotting Opportunities
Two broad strategies for spotting winning opportunities are to identify situations that a) have a high probability of success or b) have a low probability of failure. These are not glass half-full/half-empty scenarios, but rather different ways of identifying possible opportunities. Both are valid, and one or the other will likely resonate more with your goals, beliefs, and lifestyle.
Generally speaking, if you are risk averse you will probably be drawn to situations with low probabilities of failure. These are not often headline grabbers or high-flyers, but most of the time what is planned to happen does happen.
Contrarily, if you are have are risk tolerant you will probably be drawn to situations with a high probability of success. You’ll be wrong sometimes, but when you get it right the gains more than make up for the losses.
In 1923 Babe Ruth broke the record for home runs in a season; he also broke the record for most strike outs in a season. This is an instance of pursuing a strategy with high probability of success, while accepting some failure as a byproduct.
When founding Virgin Atlantic airlines, Richard Branson made a deal to lease a used 747 from Boeing for one year. If the company was unprofitable by the end of that year, Virgin could return the plane and limit the downside. This is an example of identifying an opportunity with a low probability of failure, since the most Virgin could lose was one year of operating expenses.
Consider putting some portion of your available money, time, and energy into the counter-point of your preferred strategy outlined above. "Don’t put all your eggs in one basket," as they say in the egg gathering industry. This applies to money, but also to how you spend your time, where you focus your effort, with whom you associate, etc.
If you are the type of person that likes finding potential high flyers, make one or two out of every five decisions from the perspective of reducing downside risk.
Likewise, if you naturally align with situations that have low probability of failure, add one or two potential moonshot opportunities to your overall plan.
Iseler Financial, LLC | Registered Investment Advisor | Durham NC