No Downside

My latest multi-pod obsession is with the stock markets and I’ve just been introduced to the concept of ‘hedging’.

Hedging means that you don’t guess whether the market is going up or down, you put money on both bets so you’re covered in every eventuality. As my mentor explains, it doesn’t maximize your gains (because although you automatically win, you also automatically lose) but it does minimize your exposure to risk.

This is, without really realizing it, how I’ve designed my whole life. Hedging.

Minimizing Risk Exposure

This is such a doom-and-gloom phrase. It’s like we’re planning contingencies for an incursion into enemy territory. But it’s really a very simply concept: Construct your decision in such a way as to minimize the downside.

When I left academia to drive truck, I knew academia would be right where I left it, and also that getting a commercial license would mean that I would never be unemployed, ever.

When I set out across the country to start a business with my best friend, I knew that I had six months to make a go of it, but if I didn’t, I’d had six months of vacation.

Every ‘risky’ decision I’ve made has always been designed with a built-in hedge. I never ‘waste’ time on a project that ultimately fails. I know that even if I don’t achieve my goals, the time spent has served some other purpose. There’s no way to fail when you set things up like that.

Using Market Cycles to Your Psychological Advantage

I have three businesses. The logistics of running them optimally all at once are possible, but I don’t really try. Each one is designed to run on less than 20 hours of work a week. This means that if it’s really necessary, I could run all three concurrently and still get sleep. But what normally happens is that one is going gangbusters, one is trucking along with minimal interference, and one is backburnered. And then they swap out.

You see, almost every industry and busineess has a boom and bust cycle. It’s really busy for a certain period, and then it dries up to almost nothing. Or it’s level for most of the year, but there are certain times of year when things are stupid busy.

I don’t like being stupid busy. That’s not a quality of life trade-off I’m prepared to make.

I don’t like it when things dry up. It makes me anxious. Anxious people don’t make good decisions.

So I hedge. When one business dries up, there’s always another waiting in the wings. No downside.

You can do this EVERYWHERE in your life.

You don’t need to fear change. You don’t need to worry about things not working out how you want.

Think about something you want to try. Why do you want to try it? That’s probably your upside.

Now think about what would happen if that didn’t work. How can you make your downside into an upside?

When I decided to start my copywriting business, I had already been a fiction writer and a sometime journalist for a number of years. But I was concerned I wouldn’t like writing what other people wanted me to write about. However, I was convinced it was a growth industry. There’s definitely a need for copywriters. In fact, I knew the desire for copywriters would almost certainly outlast my desire to copywrite. So I designed my growth strategy. Then I started to look at the benefits of copywriting:

  • It’s completely location independent, it doesn’t even require broadband. Even a crappy dial-up connection will allow me to work, meaning unprecedented freedom of movement
  • Writing to other people’s constraints and timeframes will train me to get out of my head with my own copywriting. (I had always been unhappy with the way I copywrote for my own businesses. It took me forever and it was never ‘right’.)
  • Writing across a variety of industries will keep me from getting bored.

Now for the downsides:

  • I won’t like it. I had an exit strategy in place and if it turned out I didn’t like it at least I’d have gotten some experience writing to spec which will help me in my own businesses
  • People will order me around and I’ve been self-employed too long to handle it. Ahaha. Yeah, this never happens to me. It’s a vibe, I think.
  • I’ll get too busy and won’t be able to turn down work durning the times when my other businesses need me. This hasn’t happened yet, but I have several copywriter friends I can subcontract to. (This is also included in my growth strategy).
  • I won’t be able to negotiate a rate that’s high enough. This is actually an interesting one. I know my resentment rate (the rate at which I start to get pissy about having to work for so little) and I definitely never drop below it. But the fact of the matter is that with three businesses, it just makes sense to spend the most time on the one with the highest ROI. Thus, the ‘no-downside’ here is that, as your hourly rate rises higher in any of your businesses, you have to raise your rates in your other businesses with it, or they stop being a cost-effective way to spend your time. It’s actually a surprisingly effective way to negotiate, because to say “I just can’t do it for less than X” is absolutely true, because you have other things that will pay you more than what you’re doing, so you don’t go in to the negotiation feeling like your back is to the wall.

There’s nothing better than taking life into your own hands.

How can you turn your downside into an upside?

[ssbp]

12 thoughts on “No Downside”

  1. Nice strategy on turning your downsides into an upside.  I don’t think things through that thoroughly like this.  If there’s a downside… then there’s just a downside to me.  I don’t really try to find the positive or make an alternative plan like you exemplified here.  But, that’s pretty smart and it’s a great way to motivate yourself into taking more risks in general.

      1.  @Shanna Mann @deniseurena I agree, Denise, I don’t tend to think things through like this. I’m actually a bit of a downside-ignorer, preferring to forget that one might exist. Bad habit! I would do a lot better with an approach like this, which makes a lot of sense to me. Though I’ll have to practice first noticing the downside and then figuring out how I can turn it into an upside…
         
        Also, those baby hedgehogs are ADORABLE. I want one.

  2. This is some really brilliant thinking. I’m more familiar with this concept of hedging by another name: reframing. It’s when you flip a situation around to find the positive things rather than focusing on the negative things. In stock hedging, you don’t end up gaining as much because you lose and win every time. I wonder if you can start hedging less once you have a really successful business going? That way you can devote more time to it and less to the backburner ones. I know it’s more risk, but could also be more fun/profitable.

    1.  @ethanwaldman Yeah, but reframing is kind of an in-the-moment thing, whereas heading is more of a full blown contingency plan.
       
      You pose an interesting question; if you back off on your hedging once you are more successful, you’ll be more profitable, but the law of averages suggests it will eventually bite you on the ass. But you’re correct, it does come down to risk tolerance and also flexibility. In 2008, as I recall, Warren Buffet strong-armed his board into keeping $1B in cash when everyone else was investing heavily, and borrowing to invest more. Although they had fewer gains when the market was up, they *also* managed to gain while the market was down– no mean feat. It’s certainly a disciplined approach, but incredibly hard to maintain.

  3. You can get into options all you want Shanna but please don’t start borrowing on margin. There are too many downsides to that one to try to flip into an upside. 🙂
    Since we’re on an investing theme today, I think it should be noted you can leverage your downsides because you’re diversified. Most people don’t diversify their income streams, social networks, health routines, or other essential parts of their lives. I’ll admit I don’t diversify every aspect of my life but I try to be conscious about doing it for the really important ones at any period of time.
    But to answer your question about turning downsides into upsides, getting into Stoicism has helped with this a ton. Asking myself, “Is this what I truly fear?” and then coming up with an answer about how painful a certain scenario would be is a tactic I use often. You could say I train for the downsides of life so that if they happen, I’m ready for them. Perhaps that’s why I do crazy things like my upcoming 120 hours of not eating, reading, watching anything electronic, or listening to music so I can focus 100% on creating.

    1.  @joeyjoejoe Borrowing on margins is a sign of overconfidence, IMO. I do everything I can to mitigate overconfidence.
       
      I like stoicism a lot, too. It’s tended to fall into disfavor, with people “focussing on the positive” but there’s no better way to deal with a fear than to have a plan in place for it. 
       
      You’re planning to fast at the same time as you write? That sounds… counterproductive.

  4. This is such a great way to look at it, Shanna. I think I do this a lot without thinking about it… I mean, I had exactly the same thought about my 6-month-business-building-or-vacation thing and my list of options if it doesn’t work is… well… yeah… a hedge. I’d never heard this discussed in a positive light, but it makes total sense. So is being a multipod just one giant hedge-bet? 😉

    1.  @sarahemily I think it is a giant hedge. It’s true, the gains aren’t as dramatic as if you’d specialized, but what if you’d specialized in video rentals, right? 

  5. For the past decade I’ve been trying to find a good reason for my attitude about focus.
     
    We run three businesses: Chief Virtual Officer is a VA and VA-training biz, Spinhead does web design, and Someday Box is independent publishing/book shepherding. (I also write fiction and music, but I know better than to pretend those are businesses. Ha.)
     
    I’ve kept trying to “choose the right one to focus on.” Yet, I keep telling people who ask about focus to look at the great masters, who could focus on anything and still make it work. For them, focus was situational. Today, we focus on marble sculpture, tomorrow, it’s getting gamboge and fallow to look right in a painting, the next day it’ll be analyzing golden rectangles. But for each one, it’s focus focus focus.
     
    And it’s called hedging, which makes perfect sense, thank you very much.

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