“Risk Appetite” was a term that was used over and over again during my investing and management classes in college. Generally, it refers to an organization or person’s view of the acceptable level of risk. I often found myself day dreaming during class. While I was very interested in learning about business, I felt that sometimes the classroom wasn’t the best place to learn. My mind would wander off into tangents about my future, and what I wanted to do after college.
As I mentioned in a previous post, initially I was a Finance major in college, but I knew I wanted something different. I decided to switch my major to Entrepreneurship. There was a lot of risk involved in switching my career path. Finance was a safe option. I knew I would be able to get a 9-5 job for some company and over 20-30 years move up the corporate ladder. However, the appeal of starting my own business and being able to create unlimited opportunities for myself was something I wanted more. So during my sophomore year in college, I switched majors to Entrepreneurship and started a quest to learn as much as I could about starting and running a successful business.
If you are not willing to risk the unusual, you will have to settle for the ordinary. – Jim Rohn
Why its important to take risks
Taking risks can dramatically improve a boring life. Playing it safe will only take you so far in life. Stepping outside of your bubble and taking risks can give you adrenaline rushes that allow you to see a whole new side of life. I’d heard about obstacle course races for a couple of years before I finally took a risk and tried one out. I took a risk, participated in an OCR, and now found a new passion. Looking back on it, I can’t imagine why I didn’t participate sooner. Taking risks also can boost your confidence, even if they risk doesn’t pay off. Just by taking the risks, you become more confident and gain experience that you never would have had, if you hadn’t taken a chance.
One of the most important reasons to take risks is so that you don’t have any regrets. After my freshman year of college, I was planning on taking a summer internship with a life insurance company. I had already made it through 2 rounds of interviews and was offered the internship. The company told me to let them know within a week or so if I wanted to move forward with them.
Then one day while I was walking through the student union on campus there was a career fair taking place. Since I already had a internship lined up I decided to skip the career fair, and go get lunch in the other part of the student union. On my way to get food I saw one employer’s booth off to the side that was very different. It was for an outdoor adventure summer camp in Texas. They were recruiting camp counselors for the upcoming summer. I watched a promo video they had at the booth and thought it looked like a lot of fun, and a great place to spend the summer. But, in the back of my head, I knew I had the life insurance internship already planned and that would definitely look better on my resume in the future. So I just kept walking, and went about my day, trying to forget about the camp job. Then later that night, I saw the people from the camp again and they told me I was the only person that came to their booth earlier that day, and they wanted to hear what I thought about the summer camp and if I wanted to work there. I explained the situation and told them I already had another job lined up for the summer.
A few days went by and I couldn’t stop thinking about this summer camp job and how much better I thought it would be than working for the life insurance company. But, if I told the life insurance company I was backing out, they might never give me the opportunity again. This was a huge decision, and one that altered my life completely. I ended up taking the risk and I spend my entire summer at a camp in Texas. It was a blast, and the best summer of my life. Not only did I have a great life experience, I also met my future wife that summer. I look back on it now and realize how different things could have been if I hadn’t been willing to take a risk and do something that was counterintuitive for what I thought was my career path.
Two roads diverged in a wood, and I… I took the one less traveled by, and that has made all the difference. – Robert Frost
How to process risks
Whenever I’m faced with taking a risk, I go through a process to analyze the possible outcomes. First I try and list the worst possible outcomes that could come as a result of taking the risk. Then, I think about what can I do to minimize those outcomes from happening. On the flip side I list the best possible outcomes that could happen by taking the risk. Then, I think about the actions I can take to maximize the chance of those positive outcomes. I compare the possible negative and positive outcomes, and evaluate how they would impact my life.
Finally, I evaluate the opportunity costs of not taking the risks. More often than not, I come to the conclusion that taking the risks will produce a greater outcome than the opportunity costs of not taking the risks. When we were in Hawaii I really wanted to swim with the sharks. I came to the conclusion that its pretty unlikely that I will get eaten by a shark, and the experience of swimming with them would be incredible. The whole boat ride out into the open ocean I was kinda jittery, but really excited. But once we got in the water, adrenaline was flowing all through my brain like never before. Around 10, 6-12 ft sharks were swimming literally inches away from us. This was one of my favorite memories from our trip, and one that I will never forget.
Only those who will risk going too far can possibly find out how far one can go. – T. S. Eliot