Avoid Total Ruin
don’t gamble everything on one go
Hello and welcome to another issue of this newsletter.
I am writing this on Friday night, a few minutes to Saturday morning. And it remains to be seen whether I attempt to finish tonight or tomorrow.
When an idea/inspiration comes to you, you should capture it.
Find a way to store the idea so that you can go back to it.
I had to paraphrase because those weren’t the exact words used by whoever said it. While I can’t recall the source of this quote, this is one of the results of a good content diet.
Even though it is ironic that I haven’t been consuming quality content this week, I suspect that I am becoming aware of the content I consume. When you consume a lot of junk information than you normally would, alarms start to go off in your head.
If you find this newsletter beneficial, don’t forget to share
Always Invert
As the problems get increasingly complex, the forward, logical process evolved in our ancestors often fails. Enter our simple, powerful mental model: inversion.
If you don’t know what you want to be/do. Know what you don’t want to be/do and avoid that.
Avoid total ruin
It is easier to go from 1 to 10 is easier than 0 to one.
Total ruin isn’t crashing down to 0. It is, most times, going into the negatives. There is a difference between starting afresh and starting again (due to ruin). When you start afresh, you lack experience, and people are willing to give you a helping hand. Starting again(due to ruin) makes people wary and reluctant to help.
Beyond that, there is a possibility for people not to associate themselves with you.
Here are some excerpts from Naval’s podcast:
“The one thing you have to avoid is the risk of ruin. Ruin means stay out of jail. So, don’t do anything that’s illegal. It’s never worth it to wear an orange jumpsuit. And stay out of total catastrophic loss. That could mean that you stay out of things that could be physically dangerous, hurt your body.
You have to watch your health. And stay out of things that can cause you to lose all of your capital, all of your savings. So, don’t gamble everything on one go. But take rationally optimistic bets with big upside.”
“The Kelly criterion is a popularized mathematical formulation of a simple concept. The simple concept is: Don’t risk everything. Stay out of jail. Don’t bet everything on one big gamble. Be careful how much you bet each time, so you don’t lose the whole kitty.
If you’re a gambler, the Kelly criterion mathematically formulates how much you should wager per hand, even if you have an edge—because even when you have an edge, you can still lose. Let’s say you have 51-to-49 edge. Every gambler knows not to bet the whole kitty on that 51-to-49 edge—because you could lose everything and won’t get to come back to the average.”
Risking everything is by definition a negative-asymmetrical bet1. Your downside is greater than your upside. It doesn’t make sense to bet a house for $20, but it does make sense to bet $20 for a house. If you lose, you lose $20; however, you lose a house if you lose in the first bet.
Another example is playing Russian roulette 100 times and 100 people playing Russian roulette. The results aren’t the same. In the first, you are almost certain to die, and in the second, there is an actual chance of surviving. This idea is called Ergodicity.
Readings
A Big Little Idea Called Ergodicity (Or The Ultimate Guide to Russian Roulette)
That wraps it up for this week. See you next Sunday.
I made this word up