Learning how to deal with risk is one of the best things a man can do.
It builds better relationships… creates stronger careers… and adds money to our wallets.
But it’s not easy. Our minds play fierce games.
We all know, for instance, that America lost close to 3,000 folks during the September 11 terror attacks.
But did you know roughly another 1,000 died because they overestimated their risk?
That’s right… after the planes rammed America’s iconic buildings, some 1.4 million folks decided it was now safer to drive than fly. They were scared of another attack.
But they overestimated the danger of flying. They failed to realize – even in the wake of a wave of attacks – it is far safer to fly than drive.
Because they failed to measure risk adequately… many of them died. Nearly 1,000 of the folks who were too scared to fly died on the highways.
It’s a common mistake that all humans make. We exaggerate our risk.
It’s dangerous… and sometimes deadly.
US… RISK TAKERS?
We’ve thought a lot about risk lately. We’re on the cusp of doing something quite big – something that could change our life in a big way. (We hope to tell you about it later this week… once we make our final decision.)
What we plan to do has no guarantee of success. But we have a vision of something great.
There is risk… but there is the potential for a huge reward.
This looming decision has made us think.
Pondering the risks we’ve taken so far in life makes it feel like we’re great risk takers. It’s as if we’re always running in while others are running out.
Running into burning buildings… fighting crazed men… living remotely and even making a few harebrained investments – all high risk, right?
And yet the more we think about it, the more we realize nobody who knows us would say we’re risk takers.
They’re much more likely to say we’re boring.
Once again, it makes us rock back in our chair and scratch our head.
When is a risk not a risk?
A GREATER MISTAKE
The great thinker Albert Einstein said it well:
“Anyone who has never made a mistake has never tried anything new.”
Without risk, in other words, comes no reward.
Einstein used an apt word. It’s making a “mistake” that we all fear. If our risky move goes wrong, we’ll have made a mistake.
But what is a mistake?
Ah, now we’re digging…
We’ve rushed into burning buildings. Would it have felt like a big mistake if the fiery walls had come crashing down and trapped us?
Sure, we suppose. But we argue it would have been a much bigger mistake to sit on the curb and watch the house burn with lives still inside.
Or how about investing a hefty chunk of change into a business we think is onto something? We could make a mistake and lose our money.
True… but we could also skip the investment, never make a penny and work 10 hours a day for the rest of our life.
Which would be the greater mistake?
The truth is everything we do has a downside. It’s not hard to find it. Humans are quite good at it.
What’s hard, though, is accurately measuring risk and fairly comparing it to the upside.
That’s why all those folks died on the highways… instead of flying.
And it’s why countless folks die flat broke… at work.
It’s a common mistake that all humans make. We catastrophize our risk.
In others words, we picture the absolute worst-case scenario and give it bonus points in our risk vs. reward equation. It leads to trouble.
Our brains are wired to overestimate the odds of the worst case. But, most often, the risk is incremental.
For example, we don’t invest because we think we could lose all of our money. But that worst-case scenario is highly unlikely. Very few folks ever lose even a large percentage of their money with a traditional investing strategy, let alone all of it.
The truth is, with a solid exit strategy, our downside can be limited to 25% or even 15%… or even less.
Again, the downside is incremental, but we simply don’t think that way. Our brains would rather focus on the worst case – losing it all.
What complicates matters is that man underestimates his ability to deal with risk. Going back to our investing example, is it the end of the world if we lose a few grand on an investment? Nope… chances are we’ll adjust our lifestyle temporarily and never feel the loss.
It’s the same way with risk-taking at work. Few folks chase the career of their dreams because there’s risk involved. The new job may fizzle… it may mean moving to a new town… getting a new boss… or finding a new parking space.
It feels daunting, so folks stick to a job they hate… for decades.
Instead of realizing that they’d end up just fine – that man is quite good at adjusting to change – they fail to take a risk.
There’s all sorts of scientific evidence that shows why humans are, by far, the best species at adapting.
Our social networks, our ability to live nearly anywhere on the planet and even our exploration of space prove that we can overcome just about anything… if we’re willing to take the risk.
That idea takes us back to our head-scratching question.
When is a risk not a risk?
It’s only a risk when you don’t take it.