Tag Archives: risk taking

The Only Good Idea Is A Bad Idea

I am a mediocre trader. I’m not rich. And yet I have come up with a few good ideas here and there over the years and they have something in common. I always arrived at them by trying to think of something stupid that wouldn’t work. They were all bad ideas that no one thought made any sense.

That is how it has to be. I trade in extremely competitive markets. Every intuitively good idea is done as efficiently as possible by people with tons of experience and resources. Finding ideas with little enough competition for small firms like mine to do profitably requires ideas that people have an aversion to, but which end up working.

I think this is probably true in many activities. In order to make money at a small scale or get attention or interest in your work you need to do something that seems wrong but works somehow. Because then you are competing with a lot fewer people.

But once you have scale or attention then it isn’t as hard to keep it. You just have to do the things that seem right, but require a lot of resources. So it seems like successful people just do things that make sense but it’s not how they got there. They had do something that flew against their instincts and everyone else’s.

What you see with a lot of successful people is that they have one big idea that they milk for all its worth. Nassim Taleb milks the idea of the “black swan” because that is what got him a ton of attention. If “Fooled By Randomness” hadn’t sold he probably would have moved on to something else.  Anyone else could try to expand on the same idea, but they almost certainly won’t be successful. Why would people want to get their black swans from just some random person when they can get them from the guy who invented them?

A lot of famous people don’t even need to milk their one idea anymore. They can just be ordinary and people will continue to like them due to familiarity and that one original thing they did once. Would anyone hire Bruce Willis or Robert Deniro to be in a movie if they were unknowns now? It doesn’t seem likely based on any performance they have given in the last 20 years or so.

There is a big downside for already successful people to come up with new bad but genius ideas. They are likely to fail, and a lot of people are watching. They might expose their earlier genius as just luck. So successful people who continue to take big chances are very rare. Consider Steve Jobs. He consistently took chances, and even though he’s been dead for 7 years, the only new thing that Apple has produced since then is the Apple Watch. What a hit! The only person like that today in the business world seems to be Elon Musk. In the celebrity world Donald Trump also seems to take big risks.

So, if you have few resources and can’t get anywhere by playing it safe, what do you do? There are clearly more bad ideas that are just bad than idea that seem bad but are actually good. How can you separate them? Its really hard. As far as I can tell there are 2 key factors that give an idea potential. One is that there has to be a lot of uncertainty about the outcome. Stubbing your toe is a bad idea, but you know how its going to turn out. There is no uncertainty, so there is no room for it end up working out. The other is that the worst case scenario can’t be that bad. Failure is the most likely outcome, so failure has to be survivable. Then, that’s it. You just have to try things. As long as you have massive uncertainty and limited downside and the feeling like your idea is stupid and doomed, then you are on the right track!