Things break easily.
There are infinite ways for them to go wrong, and only a few where they work out.
For example, I’m typing this with my hands. They’re an incredible arrangement of bones, ligaments, tendons, blood vessels, nerves, and other stuff.
In almost every other arrangement of these structures, I’d have a bleeding blob of meat and bone attached to my wrists. And yet, somehow, you’re reading this.
The same is true in markets.
Imagine I start a company that tries to solve fusion energy.
Chances are, it’s not going to work. There are many ways to build a broken nuclear fusion reactor, and only a few (if any) that function as required.
The odds of success are unimaginably slim. But if I succeeded, the rewards would be unimaginably huge.
What can we conclude from this?
That in order to create something new, you have to stomach an extremely small chance of success (with a comparatively larger potential payoff). The bigger the creation, the worse the odds, but the higher the rewards.
Taleb addressed this better than I ever could in Antifragile (see books), but I’ve got a more practical question in mind:
How do you structure your life in light of this fact?
One solution is to take on maximal risk.
Throw caution to the wind, and specialise in producing new, novel ideas.
Another answer is to never create anything new. Get your accounting degree, and drive your company car to the same building for the next 50 years.
Of course, the answer is that both are necessary.
And smart people have already figured out a reasonable solution (again, Taleb’s Antifragile): the barbell.
If you have a barbelled risk profile, you take ultra-safe bets to avoid intolerable losses, and throw the rest into high-risk, high reward bets.
This is the accountant who works 50 hours a week, but spends nights and weekends writing his screenplay.
But I’ve got another question:
What happens when technology uproots our “low-risk” plays?
What should the accountant do when he’s replaced by the newest piece of AI (and the keys to his company car are revoked)?
How do we hedge our bets when the world is mass-producing hedge trimmers?
I think it comes down to two main ideas:
First, anchor yourself with truly fundamentals skills – these are first-principles thinking, and the ability to influence other people. No matter what gets automated, these remain valuable.
Second, build a unique brand. The more you’re differentiated, the harder you are to automate, and the higher your perceived value.
Luckily, these both compound over time.
The more skills you have, and the stronger your brand, the lower your risk profile.
The lower your risk profile, the bigger the swings you can take while maintaining a barbelled approach.
And the bigger your swings, the higher your odds of building something incredible.