Taking Risks Is The Only Way To Fly In Life

If you would observe most people you know, you would notice that statistically most of them are not risk takers. They cling into what they have and are afraid to take big risks. So why is that?

Turns out this is part of human nature and is due to two big factors we call the "Endowment Effect" and "Loss Aversion". In the Endowment Effect, people will always overvalue the things they own or have. Loss Aversion states that people feel their losses much more than they feel their gains.

So the Endowment Effect makes it that they value their current situation much more than another situation they are not in, and in Loss Aversion they feel they have lost a lot when they think about giving up their situation, even though the new situation might be more beneficial.

Add to all that uncertainty of a new outcome and this makes it very hard for someone to decide on giving up something in exhange for something else, specially when there are uncertainties about that new situation.

If you'd like to go into detail about this subject, you should check the "Prospect Theory" devised by Daniel Kahneman & Amos Tversky.

You have to risk big to win big

It is a known fact that high rewards come from high-risk scenarios, and that playing it safe limits your gains. Simple example: If you went to a casino and wanted to play it safe and gambled with only 50$, it is extremely unlikely that you would win 1000$; in contrast if you started out with 1000$ as a budget, winning another 1000$ is much easier and faster...but of course you'd be willing to lose more in that scenario.

The willingness to lose more, thus sacrifice more, gives you a better chance of coming out as the winner.

Building your assets column

In the "risk taking" subject, what I really want to focus on is the scenario where you try to build your external passive assets column.

What I mean by that is having something for you that adds value to your life without you having to continuously working for it, that once you put in the needed work to acquire, continues to serve you in a cumulative way.

Example: If you're an author, it would be a book you write that keeps generating sales for you everyday. If you're a blogger, it's about writing blog posts that keep getting new readers everyday. If you're a businessman, it's about having businesses or projects that generate money for you everyday. If you're an engineer, it would about about the skills and experience you gain and keep using forever in new situations.

So how can you have something established that gets you value everyday without you having to constantly work for it? You have to put in effort and take big risks to make them exist. You might put in the effort and fail, but the good news is that the moment you put in the effort and succeed you now have something in your arsenal that makes you more powerful everyday. So keep trying until you succeed.

Afterall, success always starts with failure. Keep trying until you succeed, but never let failure stop you from trying again.

My particular case

I am a private web investor. I invest in web properties, buy them, improve them, sell them. Same way as a real estate investor would buy houses, renovate them and sell them for a higher price. This is how I've been able to build a successful portfolio of web assets that generate money everyday.

But this isn't foolproof, not all my investments succeed or are good. There is no way to guarantee that an investment will be a good one beforehand; you can obviously reduce risk but you can't be 100% sure of the outcome before you do it.

How I started

I started first by partnering up with a partner of mine in buying a low value web property in order to figure out if this could work out. We bought a small website that eventually became a failure as an investment and had to liquidate it. It was a bad experience and nearly made me give up in this type of investment.

A while later I fell onto a web property that I liked, and considered acquiring it. Problem was? I didn't have the money for it. Most people would stop at this point, but I was crazy enough that I went and took out a considerable loan to buy it. Of course I assessed the risk the property had before making that move, and since I was courageous enough I proceeded with it.

Two years later, the money this web property generated covered the entire loan I had taken and all the money it produced starting that point was pure profit, in other words "free money". This is when I was able to call this investment a successful one.

Robustness/Antifragility period

As soon as you have one success like this, the next risks become easier to take. Why? Because if your next risk fails, this success can cover it up. For example if I need to take a loan to buy another property, I know that if that second property fails, the money generated from the first successful investment will pay back the loan.

Building on top and above

Using the robustness you gained from the first success, now you can continue taking risks and building your assets up. By continuing to rely on this recipe your assets will continue going up and your value builds up gradually. Nowhere to go from here but up.

Conclusion

Always start by taking risks. If you fail try again until you succeed. When you succeed, keep trying forever and watch your value go up. An easy recipe. One simply has to have the courage to make the first move, trusting it to chance. If you don't do that, you are more sure to stay where you are with no chance of going past the expected outcome of the path you are currently on.

As William Shepp said:

So make up your mind. Take calculated risks. Enjoy what's to come.

The only way to win big is by taking risks.