Doesn’t sound right does it? And it’s not what Wall Street tells you either. If Wall Street is conventional, the Old School way is anything but conventional. High risk is considered to produce high returns. You are subject to those unpredictable variables which give you the “lose it” or “win it big” factor.
The House of Risk
We all know that the odds are against you in any casino. However, if there was at least one table in the whole house offering odds where they were in your favour, even by 1% you would be crazy to be sitting and gambling your money on a different table. Sure, the high risk odds offer attractive payouts, but as you keep gambling, the house always wins. The low risk bets, or odds that are in your favour, will leave you on top. Betting on the odds that are in your favour over and over again will obviously grow your cash pile. Probability tells you so, but far too many investors go for the odds leaning towards the house.
As Monish Pabrai puts it in his book Dhando Investor
Heads, I win; tails, I don’t lose much!
Bonhoeffer Fund's performance update for the month ended July 31, 2022. Q2 2022 hedge fund letters, conferences and more The Bonhoeffer Fund returned 3.5% net of fees in July, for a year-to-date return of -15.8%. Bonhoeffer Fund, LP, is a value-oriented private investment partnership for . . . SORRY! This content is exclusively for Read More
Look at The Proof
Great value investing strategies of Benjamin Graham, Warren Buffett and his coalition of “The Superinvestors of Graham and Doddsville” show that it is indeed possible to keep risk to a minimum while producing staggering returns.
Heard about Buffett’s rule?
Rule # 1: Don’t lose money.
Rule #2: Don’t forget rule number 1.
Low Risk in Businesses
Now let’s think as small business owners and see how this concept applies to businesses. If you were a business owner, you would be intent on reducing unknown variables in projects and when seeking business opportunities. You would constantly look at things from different angles and think of different possibilities. But that is not