Sunday, May 14, 2006

Business, Investing, Gambling, and Their Risk

"Warriors take chances. Like everyone else, they fear failing, but they refuse to let fear control them." Ancient Samurai saying

Three really strong interest that I have are Business, Gambling, and Investing. Three unique playing fields but they all have the same goal, to increase income. Business, is the most controllable followed by Investing and then Gambling. I find it interesting how many people use these three words interchangeably. Most people will always tell you that starting a business is a gamble thus you are gambling. Investing is risky therefore you are gambling there too. What a joke! Sure there is a level of chance that occurs in investing and business however, both can be won or earn a positive income consistently over time therefore it is not a gamble. In the following paragraphs I set the record straight regarding risk when it comes to business, investing, and gambling.

Business requires skill and building a business can be an art. As with walking across the street business can be associated with risk however, that risk is extremely controllable and can be minimized by knowledge and skill. Obviously, walking across an urban highway can be very risky and that risk can be minimal if walking across a highway in a rural town. Just like we can decide what risk we take on by deciding what type of road we want to cross on foot, we can also control risk in business by deciding what business we want to take on and in what industry. We can minimize risk and increase success by increasing our skill in building businesses. Some people with an employee mentality will feel that they have minimized their risk my not starting a business and instead they will get a job.

In actuality all they have done is put the risk in someone else's hands. They leave the risk of the business they work for in the hands of the business owner they are working for. However, they also leave the risk of their primary earned income in someone else's hands also. In this situation the employee risks losing their job, due to downsizing, bankruptcy, or any other negative consequence that could occur in business. To the employee who has a family, average household debt, other financial obligations and dependents the consequences of losing a job can be catastrophic. I find it more risky to leave my financial future in the hands of someone else versus taking control of it by starting and building my own business. Therefore, I strive to be a successful business owner and not an employee.

Investing once again does involve risk but, that risk can be minimized and sometimes eliminated by understanding your investments. Since you are normally investing in a business of another person there is still some risk associated with your investments because they are less controllable. In other words you are investing in someone else's skill of running a business and not your own. Actually this type of risk is in some ways is similar to the risk taken on by an employee. Investing can be less risky than employment for several reasons. First, if you have done your research then you have a solid understanding of your investments, the business model they are based on, and the future before them. These are all things that most employees do not research before taking on a job with a company. Also most people don't earn their primary income from one investment but the vast majority of employees do earn their primary income from their job. Investors can actually take on less risk than most employees by understanding the businesses behind their investments.

Gambling is sheer luck and therefore is the riskiest of all of my interest according to most people. However, I submit to you that even this is not completely correct. Now I will agree that gambling is definitely the riskiest but it is not all sheer luck. Gambling is a game of mathematics and understanding the mathematics behind your gambling game of choice will help you to succeed more often or at least make your bankroll last as long as possible. With the exception of Poker there are no legit professional gamblers that last very long as professionals. Poker is different because it is not a game of sheer mathematics and chance; a very large element in poker is the skill of the other players at your table. Most people are truly ignorant when it comes to gambling I often go to the casino watching people gleefully play games with a tremendous amount of odds against them and they have no idea. Just a quick about two casino controlled games that can most often be beat in the short term are Blackjack, as long as you are using basic strategy and yes there is a strategy to that game. If you playing that game just trying to get close to 21 you will lose and usually lose fast. The other game is Craps, this game has some of the best and worst bets in the casino all on one table. As long as you know what are the good bets versus the bad bets you can sometimes play for a very long time on a Craps table with a minimal bankroll. What makes gambling so enjoyable is not the risk that is associated with it but the instant gratification that is experienced when winning.

That was just a little bit about my favorite interest of Business, Investing, and Gambling and the risk associated with each. Risk can often be controlled or minimized this is most evident in business and less so with investing. Gambling is most often the riskiest but does offer the quickest gratification at times. Risk can be minimized with gambling as long as your understand the mathematics behind the casino games or you increase your skill compared to others at the Poker table. Hopefully this article help to put the concept of risk in a more proper perspective when associated with starting or building a business, choosing an investment, or walking into the casino.

2 comments:

Anonymous said...

Hi Jackie,

I enjoyed this entry. It was well thought out and well presented!

I look forward to many more.

RB

Adam McFarland said...

Jackie,

You make the PERFECT argument about the risk of being an employee vs starting your own business. I can't tell you how many times I've had that discussion/argument with people.

I'm not sure why other people don't see things the same way, but I suppose it's good for us. It would be a weird world if everyone tried to start their own biz and no one wanted to be an employee...so in an odd way I'm actually glad that more people don't see eye to eye with us.