An interesting article written by Sir Mangun in BusinessMirror talks about taking risks and how foolish (if ever) it gets. Read the full article here. You can also visit his site mangunonmarkets for more interesting insights.
Similarly, I have mentioned that life is in fact a risk. That we cannot eliminate it, yet we can reduce it and take calculated risks depending on our risk appetite.
Amount vs Probability
We need to be wise in taking risks. In his article, he encourages us to focus, not on the amount to be gained, but on the probability of gain, no matter how small. He says,
“It is not about the amount of the potential loss/risk or the size of the potential reward that matters. It is about the probability of incurring the risk as against the probability of gaining the reward.(Mangun)”
Why not bet on smaller games with less winning combinations, but with definitely lower pot money. Hey, higher chance of winning a PHP16M pot than next to nil chance of winning PHP100+MM is not bad at all right? I’d rather have some part of that PHP16M than always losing on my PHP100+M bet. But if it was Mangun, maybe he’ll say that it is still a bad bet. A foolish risk haha!
“I am happy to put up 1 million to gain 100,000 if the odds are 95 percent in my favor. I am not willing to buy a P10 lotto ticket to win P10 million because the odds are greater than a million to one against me. Both the successful stock and poker players understand this concept. That is why they are the winners. (Mangun)”