Risk

 

Life is a risky proposition. No one knows what the future holds. People who never take any real risks tend, in my opinion, to lead breathtakingly boring lives. If you never go anywhere, do not meet new people or are not open to new ideas and experiences you are not only cheating yourself but not living up to your potential.

 

Over the years in both business and life, I have had to take risks both large and small. Perhaps I weighed them more carefully than many, less than others.

 

Here is my take on risk:

 

Business folklore is full of stories about wild entrepreneurs who were very lucky. H.L. Hunt, the early billionaire oil baron, was said to have won his first few petroleum leases in a poker game. Others were said to have put charges on their credit card to the max, a few days before a major order came through. One well known player a few years back, allegedly won a bundle at a casino and dragged his fledgling company out of imminent bankruptcy. These make for great stories but, I would wager, are likely half-truths at best.

 

I learned VERY early in the media business that selecting the proper allocation of advertising vehicles was not so simple. Clients and colleagues would tell me that “you cannot go wrong with television.” They did not seem to understand that, at the time, some 72% of primetime programs were cancelled in the first season. To succeed, you needed to pick a mix of established programs and only take a flyer on a few new programs. I hit a 500-foot home run with “Murphy Brown” in the 1990’s but was way off by avoiding “The Big Bang Theory” early in this century.

 

When digital took off some years back, simply saying the word Facebook insured client commitment. It did not work out for many along with a host of online alternatives. Big Data let the major players follow customers and reach them effectively and well. Marketing risk declined as implementing big brother options accelerated.

 

Most movies lose money—big time. I almost laugh out loud when I see the number of Executive Producers listed in the credits for Netflix, Amazon Prime, or Apple TV films and programs. I also see a similar thing at the actual movie theaters. These “Executive Producers” are largely not big-time players in Tinseltown. They are often hedge fund types or money managers who have cash to burn and have “gone Hollywood.” It will end badly for some as they realize that the Wall Street casino has better odds than the motion picture industry.

 

Most businesses fail, as I have often written, and restaurants have the highest mortality rate of all categories. Yet, each year many thousands take the plunge and bet the ranch on their concept.

 

Over time, I have observed a similarity between successful gamblers (usually poker players) and investors. Both know when to quit. Some of the shrewdest investors whom I have ever encountered cut their losses quickly. If a stock they buy drops 20%, they get out immediately. Yes, it may and sometimes does bounce back, but they “take their medicine” and absorb the small loss and move on to something else.

 

The best gamblers usually have a similar discipline. They have a pre-set limit to their losses. The sharpies do not double down when behind. They realize that each deal is an independent event, and a hot streak is not a real thing. As Kenny Rogers once sung, they “know when to walk away and know when to run.”

 

The media does a poor job of profiling entrepreneurs in my mind. Sir Richard Branson is always portrayed as a swashbuckling risk-taker who loses a lot but is also very lucky. If you follow him at all closely, you find that his philosophy is and I quote, “It is only by being bold that you get anywhere. If you are a risk-taker, then the art is to protect the downside.” When he started as a teenager, he took some huge chances. Now, his risks are far more calculated.

 

Successful people take risks, but they also hedge their bets. Hedging is, in financial terms, is more than keeping one’s options open. It is lessening risk. One gives up potential gains if you are right but cutting losses if things go awry. So, it increases your chances of getting your goal of getting what you want but lowers the chances of getting more. Some people do this via options (puts and calls) in securities markets or via insurance in other venues.

 

To me, President Eisenhower put it well when he was a World War II general. He wrote, “Plans are worthless, but planning is everything.” Ike understood risk better than most of us. You need to plan and hedge your bets and have downside protection.

 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com