Intelligent Risk Taking

One sure way to become a multi-millionaire is to start out with lots of money.  The maverick businessman Ted Turner began his empire when he inherited the South's largest billboard company from his father.

Turner did, however, play a large role in his subsequent business success.  As Malcom Gladwell points out in an article in the New Yorker, Turner's decision to buy a UHF television station in Atlanta in the 1960s was met with deep concern from both his lawyer and his accountant.  They warned that Turner risked losing everything if the TV venture failed.

Gladwell suggests that Turner did not, in fact, risk it all, but instead capitalized on various positive attributes of the deal that were not recognized by others.  For example, "any losses could be used to offset the taxes on the profits of the billboard business."  In addition, Turner could advertise the station for free on his billboards.  Maybe most importantly, "Turner paid with a stock swap engineered in such a way that he didn't have to put a penny down." 

In my post "Embracing Fear" (see http://www.blog.wienerfinancial.com), I argued that in order to achieve success, you cannot fear failure.  That does not mean, however, that you need to take undue, ill-conceived risks.  Gladwell claims that entrepreneurs who have transformed our economy are not the daring risk-takers of popular imagination, but are people who had an incredible ability to find opportunity where others did not see that it even existed.

In the end, Turner ran the risk of failure.  Yet he tried to enter into a business situation that made success the most likely outcome.  Gladwell concludes that "[o]nce you get past the more flamboyant aspects of Turner's personal and sporting life, in fact, there is little evidence that he had any real appetite for risk at all." 

Success seems to be a fine balance between accepting failure as a natural consequence of taking risk, but also seeking to limit your losses by taking the most calculated, reasoned risk possible.  Obviously this balance is just as much an art as it is a science.

Words of Wisdom

Risk comes from not knowing what you're doing.
-- Warren Buffett