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jerryking : risk-aversion   17

Why moonshots elude the timid of heart
February 14, 2020 | Financial Times | by Tim Harford.

* Loonshots — by Safi Bahcall.
* Major innovations tend to result from investment that is high-risk, high-pay-off.
* Executives at the Cambridge, UK outpost of an admired Japanese company fret that success rate of their research and development, at 70%, was far too high. It signals that research teams had been risk-averse, pursuing easy wins at the expense of more radical and risky long-shots.
* Disney, the belief is that Disney if you weren't failing at half of your endeavours, you weren’t being brave or creative enough.
* The problem is a societal/systematic preference for marginal gains over long shots---It is much more pleasant to experience a steady trickle of small successes than a long drought while waiting for a flood that may never come.
* marginal gains do add up, but need to be bolstered by the occasional long-shot breakthrough.....Major innovations such as the electric motor, the photo­voltaic cell or the mobile phone open up new territories that the marginal-gains innovators & tinkerers can further exploit.[JCK: from Simon Johnson, "public investments in research and development contribute to what the authors call the “spillover effect.” When the product of the research is not a private firm’s intellectual property, its impact flows across the economy."]
* the UK Conservative party’s promise to establish “a new agency for high-risk, high-pay-off research, at arm’s length from government” — a British version of the much-admired US Defense Advanced Projects Research Agency.
* DARPA's failure rate is often said to be around 85%.
* a low failure rate may indeed signal a lack of originality and ambition.
* Arpa hires high-quality scientists for short stints — often two or three years — and giving them control over a programme budget to commission research from any source they wish.
* the Howard Hughes Medical Institute, a foundation, deliberately looks for projects with an unusual or untried approach, but a large potential pay-off.....HHMI gets what it pays for — more failures, but larger successes, compared with other grant-makers funding researchers of a similar calibre.
* how long will UK politicians tolerate failure as a sign of boldness and originality? Eventually, they will simply call it failure.
* the trilemma: Be cautious, or fund lots of risky but tiny projects, or fund a few big, risky projects from a modest budget and accept that every single one may flop.
audacity  big_bets  boldness  books  breakthroughs  Cambridge  DARPA  failure  game_changers  high-reward  high-risk  incrementalism  industrial_policies  innovation  jump-start  marginal_improvements  moonshots  originality  politicians  public_investments  publicly_funded  quick_wins  R&D  risk-aversion  science  small_wins  spillover  success_rates  thinking_big  Tim_Harford  timidity  United_Kingdom 
2 days ago by jerryking
First Skripal, Then NATO - WSJ
By Holman W. Jenkins, Jr.
March 13, 2018

London has long been a favorite place for Putin allies to stash their stolen wealth and conduct their rivalries. Since the attack last week on Sergei Skripal, a former head of Scotland Yard is now calling for investigation of 14 other mysterious, Russia-related deaths........ The West’s risk-aversion in dealing with Mr. Putin is understandable.
Russia  Vladimir_Putin  security_&_intelligence  United_Kingdom  risk-aversion 
march 2018 by jerryking
Tech Startups Struggle to Close Deals With IT Buyers - WSJ
By ANGUS LOTEN
Aug. 24, 2016

As Haier and other large corporations become increasingly digital, they are spending more time checking out technology offered by small, independent tech firms. Yet startup products and services for enterprises, while more accepted than a few years ago, still face significant resistance on the path toward revenue, CIOs and industry analysts say.

“I won’t take a risk on something that isn’t from a proven enterprise technology company,” especially for key functions, such as sales, human resources, cybersecurity or even office email, said Ms. Johnston. “Some startups are just so cheap or free, you’re nervous to go with it. What if they go out of business?”

Only 23% of 112 large corporations in a recent survey said working with startups was very important, according
customer_adoption  start_ups  large_companies  CIOs  Haier  challenges  cloud_computing  risk-aversion  SaaS  IT  risks 
august 2016 by jerryking
Janice Gross Stein on smugness: ‘Comfort is our biggest enemy’ - The Globe and Mail
MONICA POHLMANN
Special to The Globe and Mail
Published Friday, Dec. 05 2014

Canadians aren’t change leaders. We’re deeply, deeply risk averse. If you give us a choice, we prefer the status quo, because we think it’s less risky. What we don’t understand is the cost of inaction. Most of our public-sector institutions are buried in process....The corporate sector is the least risk averse. It has a better-developed sense of risk and understands that the status quo is not sustainable...We need more entrepreneurial spirit in this country, most of all in the public and not-for-profit sectors.

If things turn out badly over the next 20 years, what would have happened?



We would have failed to keep our young people. They will go where the work is interesting and challenging, and where they can contribute. That will be a huge loss. If we don’t reorient our institutions to make them hospitable to members of this generation, they will just walk right around them and do other things. Our institutions will atrophy, because they won’t have people to shake things up and say, “No, we’re not going to do it this way any more.”

We will also fail if we do not recover from our terminal illness of smugness and self-satisfaction. Otherwise, we are not going to push ourselves hard enough and will ultimately slide into mind-numbing mediocrity.
Janice_Gross_Stein  complacency  status_quo  public_sector  institutions  cost_of_inaction  mediocrity  self-satisfaction  risk-aversion 
december 2014 by jerryking
Search funds: The quiet, dependable, risk-averse sibling to the startup.
OCT. 1 2014 11:43 AM
“I Didn’t Want to Build the Next Twitter for Cats”
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Search funds are the quiet, dependable, risk-averse sibling to the startup. 

By Alison Griswold

for a small number of would-be entrepreneurs who lack either the confidence or the foolhardiness to believe they can create the Next Big Thing in tech, a search fund makes a whole lot more sense.

The idea behind a search fund, in its simplest form, is this: If you want to run your own company but don’t want to start it, then why not buy one? Search funds are financial vehicles typically set up by one or two people to raise money from investors toward searching for—and eventually acquiring—a small business. In one sense, they might be loosely described as micro–private equity firms, except that unlike Bain Capital, the average search funder isn’t looking to make a quick profit off buying, gutting, and reselling a struggling business. He’s interested instead in taking a shortcut to the top of the management ladder and staying there for the long haul..........On the bright side, in exchange for that slog, searchers get one of their main advantages over startup founders: diminished risk. “Starting up a company is a double whammy in the sense that you’re coupling an inexperienced manager or managers with a business that doesn’t exist,” Grousbeck says. “So you have the inherent risk of the venture itself and layered on top of that is the risk that the people running it have never managed anything before. In the search fund model, one of those risks is eliminated.”
buying_a_business  risk-aversion  search_funds 
october 2014 by jerryking
If enough African-Guyanese return to their capitalist roots Guyana’s economic future will see improvement Georgetown, Guyana
JANUARY 8, 2010 |- Stabroek News | Michael Maxwell.

The question is whether the state or the individual/community bears primary responsibility for wealth creation with focus on the African-Guyanese populace. Unquestionably, both the state and the individual are responsible for facilitating the creation and pursuit of legitimate wealth. ...Orientation to wealth creation in the African-Guyanese community is presently stymied by several factors, most notably a poor personal saving rate, low investment rate, business risk aversion, low communal wealth generation endeavours and high public sector and service sector participation rate. ...A bigger problem for African-Guyanese capitalism and entrepreneurism is its lack of support from its own group. African-Guyanese businessmen and the community must lead the charge in educating African-Guyanese about the benefits of personal and commercial wealth generation......The greatest form of empowerment is economic empowerment, and dramatically so for a poor people in a poor nation. That is the true measure of freedom. Without a strong African-Guyanese capitalist class in Guyana alongside the Indian-Guyanese capitalist class the nation cannot achieve a decent path of economic progress. Wealth creation is not an alien concept to African-Guyanese who were the first independent producers in Guyana after slavery before becoming a mostly entrenched consumer and service providing class to the primary capitalists.
Afro-Guyanese  wealth_creation  capitalism  letters_to_the_editor  economic_development  Guyana  self-determination  self-discipline  self-employment  self-help  support_systems  generational_wealth  individual_initiative  economic_empowerment  risk-aversion  public_sector  distrust  disunity 
september 2014 by jerryking
China will keep spying. Canada must respond with skill, not rhetoric - The Globe and Mail
DAVID MULRONEY
Contributed to The Globe and Mail
Published Thursday, Jul. 31 2014

China uses its long reach for objectives other than espionage. It feels free to confront any Canadian who shows undue interest in “sensitive” topics. Members of Parliaments, mayors, academics and community leaders have been bullied for displaying interest in the Dalai Lama, conditions in China’s restive Xinjiang region, or the plight of Falun Gong practitioners.

This is unacceptable, but here’s the hard part: we can expect more of the same. A rising but insecure China will not shrink from clandestine and downright unfriendly tactics to advance its interests.

We need to be clear-eyed in facing up to this. But we also need to recognize that our future prosperity, security and well-being depend on maintaining our own intelligently self-interested relationship with China.

So let’s start by banishing the rhetoric. China is not our best friend, any more than it is the sum of all fears. We do need to acknowledge and address the real threat China poses to our security.

Government needs to lead the way, but Canadian companies also need to step up their game. Enhanced security consciousness starts at the top. There are all too many anecdotes about security minded employees being over-ruled by senior executives who are worried about offending inquisitive Chinese visitors. That exquisite sensitivity is never reciprocated when it is the turn of the Chinese to host foreign guests....The one thing that we should avoid doing is closing doors to co-operation. Unfortunately, that’s already happening, and companies on both sides of the Pacific are paying a price. The Chinese media are portraying the U.S. technology sector as a major security threat. This makes it fair game for overly zealous regulators, and plays into the longstanding Chinese inclination to make life tougher for foreign firms. This week, investigators descended on Microsoft offices in China. Meanwhile the China operations of U.S.-based chip maker Qualcomm are also under review. Firms like Apple and Google have felt a similar chill.

Here in North America, China’s telecom giant Huawei is our bête noir, accused of being a proxy for the Chinese security apparatus. These allegations find a ready audience among a Canadian public that, as recent polling has shown, is increasingly wary of China.

It’s hard to argue against caution when it comes to China. But we’re jumping from naive acceptance to complete risk avoidance. There is an intermediate step – risk mitigation. Although its approach is not without controversy, the U.K. has opted for a partnership with Huawei that sees the Chinese company funding an inspection process in Britain designed to reduce security risks.

Complete risk avoidance, or shutting our door to China, comes at a cost that falls on consumers, on smaller companies seeking access to global markets, and on communities seeking investment....China is at the heart of changes that expose us to new levels of threat and uncertainty. We need to respond with skill, purpose and confidence. The only thing more dangerous than engaging China is not engaging it.
anecdotal  Canada  Canada-China_relations  cyberespionage  China  David_Mulroney  espionage  frenemies  Huawei  influence  influence_peddling  intimidation  inquisitiveness  purpose  risk-aversion  risk-avoidance  risk-management  risk-mitigation  security_consciousness  security_&_intelligence  self-confidence  threats  uncertainty 
july 2014 by jerryking
The Biology of Risk - NYTimes.com
By JOHN COATES JUNE 7, 2014

What is it about risk taking that so eludes our understanding, and our control?

Part of the problem is that we tend to view financial risk taking as a purely intellectual activity. But this view is incomplete. Risk is more than an intellectual puzzle — it is a profoundly physical experience, and it involves your body...Risk by its very nature threatens to hurt you, so when confronted by it your body and brain, under the influence of the stress response, unite as a single functioning unit....The state of your body predicts your appetite for financial risk just as it predicts an athlete’s performance.

If we understand how a person’s body influences risk taking, we can learn how to better manage risk takers. We can also recognize that mistakes governments have made have contributed to excessive risk taking.

Consider the most important risk manager of them all — the Federal Reserve. ...Uncertainty over the timing of something unpleasant often causes a greater challenge response than the unpleasant thing itself. Sometimes it is more stressful not knowing when or if you are going to be fired than actually being fired. Why? Because the challenge response, like any good defense mechanism, anticipates; it is a metabolic preparation for the unknown....Most models in economics and finance assume that risk preferences are a stable trait, much like your height. But this assumption, as our studies suggest, is misleading. Humans are designed with shifting risk preferences. They are an integral part of our response to stress, or challenge.......[JCK from David Brooks -The Wisdom Your Body Knows scientists are now focusing on the thinking that happens not in your brain but in your gut. You have neurons spread through your innards, and there’s increasing attention on the vagus nerve, which emerges from the brain stem and wanders across the heart, lungs, kidney and gut. The vagus nerve is one of the pathways through which the body and brain talk to each other in an unconscious conversation. ].......One such opportunity is a brief spike in market volatility, for this presents a chance to make money. But if volatility rises for a long period, the prolonged uncertainty leads us to subconsciously conclude that we no longer understand what is happening and then cortisol scales back our risk taking. In this way our risk taking calibrates to the amount of uncertainty and threat in the environment.

Continue reading the main story
Under conditions of extreme volatility, such as a crisis, traders, investors and indeed whole companies can freeze up in risk aversion, and this helps push a bear market into a crash. Unfortunately, this risk aversion occurs at just the wrong time, for these crises are precisely when markets offer the most attractive opportunities, and when the economy most needs people to take risks. The real challenge for Wall Street, I now believe, is not so much fear and greed as it is these silent and large shifts in risk appetite....As uncertainty in fed funds declined, one of the most powerful brakes on excessive risk taking in stocks was released....There are times when the Fed does need to calm the markets. After the credit crisis, it did just that. But when the economy and market are strong, as they were during the dot-com and housing bubbles, what, pray tell, is the point of calming the markets? Of raising rates in a predictable fashion? If you think the markets are complacent, then unnerve them. Over the past 20 years the Fed may have perfected the art of reassuring the markets, but it has lost the power to scare. And that means stock markets more easily overshoot, and then collapse.

CONTINUE READING THE MAIN STORY
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COMMENTS
The Fed could dampen this cycle. It has, in interest rate policy, not one tool but two: the level of rates and the uncertainty of rates. Given the sensitivity of risk preferences to uncertainty, the Fed could use policy uncertainty and a higher volatility of funds to selectively target risk taking in the financial community....IT may seem counterintuitive to use uncertainty to quell volatility. But a small amount of uncertainty surrounding short-term interest rates may act much like a vaccine immunizing the stock market against bubbles. More generally, if we view humans as embodied brains instead of disembodied minds, we can see that the risk-taking pathologies found in traders also lead chief executives, trial lawyers, oil executives and others to swing from excessive and ill-conceived risks to petrified risk aversion. It will also teach us to manage these risk takers, much as sport physiologists manage athletes, to stabilize their risk taking and to lower stress.
Wall_Street  risks  risk-management  risk-taking  uncertainty  U.S._Federal_Reserve  bubbles  volatility  behavioural_economics  risk-preferences  risk-aversion  biology  psychology  interest_rates  emotions  human_experience  financial_risk  signaling  stress_response  market_crash  immobilize  paralyze  bear_markets  policy_tools  physiological_response  risk-appetite  unpredictability  physical_experiences  calibration  human_behavior  human_frailties  human_psyche  metabolic 
june 2014 by jerryking
“Entrepreneurial?” Really? | Adam Smith, Esq.
November 7, 2013
Can one really, seriously, be an entrepreneur when an income from several hundred thousand dollars year to up or to way way up, generated by the powerful machinery of the firm one is a partner in, is essentially assured? When one is not remotely putting one’s future livelihood, even for a year or two, on the line? When any personal capital invested will be returned quite promptly and in full, if you bail out? When a painless exit strategy (we’re all elevator assets, remember) is a few phone calls away? When the last Big New Thing that was invented in your chosen industry was the Cravath System ca. 1900—and you’re not dreaming of the 21st Century version 2.0 of the Cravath System in any event? When the number of employees relying on your perspicacity and market savvy for their livelihood is, well, precisely zero?

Or we could approach this from the psychological dimension.

Entrepreneurs are:
* Risk-tropic
Creative
Intuitive
Trusting
Big thinkers, and
Extremely resilient.

Lawyers are:
Risk-averse
Conventional
Judgmental
Skeptical
Detail-oriented, and
Over two standard deviations below the population norm on resilience.
law_firms  entrepreneurship  Bruce_MacEwen  risk-aversion 
december 2013 by jerryking
Playing it safe puts the economy at risk - The Globe and Mail
TODD HIRSCH

Special to The Globe and Mail

Last updated Thursday, Apr. 11 2013

Risk management is now a quasi-science, with positive and negative consequences. The positive is that companies are now better equipped to gauge the level of risk associated with any particular investment. But the negative is that, too often, risk management hampers innovation and creativity.

What should be a tool to make better decisions has sometimes led companies to make no decisions at all. Risk management should liberate companies. Instead, it has enslaved some.
risks  risk-management  innovation  economy  creativity  Todd_Hirsch  risk-aversion  risk-avoidance  playing_it_safe 
april 2013 by jerryking
Five traits of smart risk takers
March 13, 2013 | G&M | Harvey Schachter.

Review of Taking Smart Risks by Doug Sundheim. Sundheim lists five common dangers of playing it safe for too long:

• You don’t win.
• You don’t grow.
• You don’t create.
• You lose confidence as you lose momentum and start to freeze up.
• You don’t feel alive, because you aren't challenging yourself.
Harvey_Schachter  risks  risk-taking  books  book_reviews  soul-enriching  personality_types/traits  growth  cost_of_inaction  character_traits  complacency  risk-aversion  risk-avoidance  playing_it_safe 
march 2013 by jerryking
'Fraidy cats
February 22, 2013
Gary Salewicz

Without putting too fine a point on it, both men - one a successful Silicon Valley entrepreneur, the other a head of the wireless upstart Wind Mobile - bemoan Canada as a land of wimps: For Lee, it's revealed in the fact that few Canadian software engineers are willing to take a flyer on their careers and create start-ups; for Lacavera, it's about the shortage of Canadians willing to finance start-ups. This, of course, is reducing their arguments to simplistic terms, but you get the point.

Tyler Brûlé - founder of Wallpaper and Monocle magazines - whose mug also appears in the magazine (page 9), struck a similar note in a recent chat he had with students at the Ontario College of Art and Design. After he decamped Toronto for London with little more than a degree and an outsized ego, Brûlé built a media mini-empire; the lesson for students, embrace risk.

We're not all a bunch of 'fraidy cats sitting on our hands.
start_ups  entrepreneurship  risks  Tyler_Brûlé  risk-taking  risk-aversion  Anthony_Lacavera  playing_it_safe  Canada  Canadian  software_developers 
february 2013 by jerryking
Go Ahead, Take a Risk
June 22, 2004 | WSJ | By ADRIAN SLYWOTSKY

What are the risks you should be taking but aren't? Most managers treat risk as an unwanted byproduct of the business. They think narrowly of financial, operating, and hazard risks, such as currency fluctuations, employee fraud, and earthquakes. And they defend themselves through practices like hedging, internal controls, and insurance.

But disruptive strategic risks can be a much larger source of value destruction for a firm. I looked back to the bull market of the 1990s to analyze movements of the Fortune 1000 stocks; even then, before the market collapsed, 10% of stocks lost over one-quarter of their value in a single month, primarily because of strategic-risk events.

The most successful companies do not try to simply minimize strategic risk; they embrace such risk by making prudent bets in their growth-oriented strategies. Strategic risks include not just the obvious, high-probability events that a new ad campaign or new product launch will fail, but other less-obvious risks as well: Customers' priorities will change quickly -- as when baby-boomer parents quickly migrated from station wagons to minivans, catching most automakers off guard. New technology will overtake your product -- as mobile telephony has stolen market share from fixed-line voice. A one-of-a-kind competitor will render your business model obsolete -- as the Wal-Mart tidal wave has washed over mid-range department stores.

Although insurance and hedging can't address strategic risks, there are an array of countermeasures that can, including these three:
1) Smart sequencing for new growth initiatives. Look for incumbents that are moving deliberately, leveraging existing assets and customer relationships to gain the experience, knowledge, and reputation necessary to take the next step with confidence.
2) Proprietary information to reduce the risk of each new initiative. Gather and generate proprietary information that produces a depth of insight into the customer's needs and activities that traditional suppliers cannot match. This will make you a supplier of choice, reducing bidding volatility and allow you to plan with greater certainty.
3) Double betting to minimize the risk of obsolescence. When several versions of a new technology are competing to become the standard, it's impossible to predict which will prevail. So smart managers make double bets. Betting on both Windows and OS/2 positioned Microsoft to be the winner, regardless of which operating system prevailed.

Traditional risk management seeks to contain losses. But that's just one-half of the growth equation. By embracing strategic risk, Cardinal, JCI, and other risk-savvy companies have raised their growth potential in addition to reducing their economic volatility. That's important at a time when aggregate market growth is sluggish: The biggest risk of all is not to take the right growth risks for the business.
leaps_of_faith  Adrian_J._Slywotzky  risk-taking  proprietary  sequencing  scuttlebutt  information  growth  strategic_thinking  Mercer  Oliver_Wyman  product_launches  nonpublic  low_growth  slow_growth  insights  customer_insights  value_destruction  disruption  insurance  new_products  obsolescence  countermeasures  volatility  customer_risk  one-of-a-kind  hedging  overly_cautious  risk-aversion  de-risking  double_betting  risk-management  bull_markets  customer_relationships  dark_data  risk-savvy  internal_controls  financial_risk  risks 
june 2012 by jerryking
THE BIGGEST GROUPS ARE ILL WITH INEFFICIENCY
April 06 2011 | FT | Luke Johnson
● Sunk cost fallacy:
● Groupthink:
● An obsession with governance:
● Institutional capture: the phenomenon whereby mgmt. end up running an
enterprise for their own benefit, rather than for the real owners. Also
known as the principal/agent problem.
● Office politics: self-destructive infighting for power within large
businesses is endemic, and perhaps the biggest value destroyer of all.
● Lack of proprietorship:
● Risk aversion: in large corporates, the punishment for management
failure is greater than the rewards for success. So, rational
individuals pursue cautious strategies to avoid damaging their career
prospects. (aka "playing it safe")
● The burden of history: many older companies have legacy issues such as
pension scheme deficits, union contracts, inefficient equipment and so
on.
● Anonymous mediocrities: there is nowhere to hide in a small company –
if you can’t deliver, you’re out.
● Commodity products: large companies need large markets,
playing_it_safe  start_ups  inefficiencies  size  groupthink  Luke_Johnson  large_markets  large_companies  bureaucracies  risk-aversion  mediocrity  owners  office_politics  commodities  self-destructive  brands  legacy_tech 
april 2011 by jerryking
Margin of safety
Margin of safety : risk-averse value investing strategies for
the thoughtful investor / Seth A. Klarman.
“ If Benjamin Graham were alive today, he might, at first blush, be more
impressed by the appreciated value of Seth Klarman's book Margin of
Safety, than with the performance of his investment fund ….that's at
first blush. Seth Klarman is a value investor and Portfolio Manager of
the investment partnership The Baupost Group, and when Klarman first
published Margin of Safety it had an original cover price of $25. The
book is now out of print, and today sells on eBay for $1,145 [that was
in 2005]. That's an increase of 4580%.
Baupost  books  investors  investing  Avner_Mandelman  Seth_Klarman  risk-aversion  Benjamin_Graham  value_investing/investors  margin_of_safety 
march 2009 by jerryking
Bankers Need More Skin in the Game: Glassman and Nolan Say Private Partnerships Would Increase Risk Aversion Among Executives - WSJ.com
FEBRUARY 25, 2009 | Wall Street Journal | byJAMES K. GLASSMAN
and WILLIAM T. NOLAN. Op-ed piece.

(1) Partnerships may be a more trustworthy business model than
corporations.
(2) Alfred Chandler, the great business historian, said that "strategy
determines structure." Similarly, structure determines behavior.
Wall_Street  financial  crisis  risk-taking  risk-management  partnerships  financial_institutions  strategy  strategic_thinking  organizational_structure  behaviours  trustworthiness  risk-aversion  risk-preferences  skin_in_the_game  risks  Alfred_Chandler  human_behavior  business_history 
february 2009 by jerryking

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