Uncorrelated, Good Bets.
I wrote a quick post on the different ways someone can earn money. I got it down to three ways. I can dilute it even further. Making money comes down to making Uncorrelated Good Bets. Let me break it down:
Click here for the technical definition. It means that if one moneymaking venture fails, others don’t fail as well. One’s success and failure are not related to each other.
This means every time you try and make money you take a risk combined with a payoff…or an “Expectation”. Expectation is your evaluation of winning probability multiplied by the payoff if it works. Something that has a high probability of working (owning a coin laundromat for instance) usually has a smaller payoff and something that has a low probability of working (creating the next Facebook) usually has a high payoff. Occasionally ideas have a high probability of working and a high payoff (these are much harder to find of course). These are bets. Everything in life is a bet. Your health, relationships and ambitions.
You see why uncorrelated bets are important? You want your hands in things that aren’t dependent on each other. This is another way to say “diversify”. Don’t own just Coca Cola stock, buy the mutual fund that tracks the returns of the whole stock market. That way if Coca Cola goes tits up, you aren’t out all your money.
Making Good Bets is obvious. You want things that have a high expectation. If you want to create the new Facebook, great! Be ready for a high likelihood of failure. That’s a “Big Idea”. Want to consult on the side? Probably will work. Kind of like being half pregnant though. Want to work a 9–5? Will almost definitely work. Low payoff though my friend.
Everything…I mean EVERYTHING has drawbacks. Deal with it.
Now Go Hustle.