Monday, August 23, 2010

Success and Convexity Part 5: Negative Convexity

This is Post 5 in my series on Success and Convexity. For our non-mathematical purposes, we’ll define positive convexity as opening the door to many good things while limiting the access of many bad things.

What then is negative convexity in the world of personal success and achievement? It's negative luck.  It is opening the door to many bad things. Maybe not even consciously opening the door, but just leaving the door open, or even forgetting to close it. If you do this in your house, it’s not that you know something bad will come in, it’s that you don’t have any good idea what may come in. You are giving unrestricted access to negative possibilities.

Our goal should be, for the most part, to restrict access to “the unknown bad things” that can happen. We only want things to get “out of control” on the good side of things. We want to get into a line of work with an unlimited upside; around friends with drive, courage, vision and good hygiene. We want to make sure we wander into bookstores and libraries and classrooms and not wander into bars and crack houses and , hopefully, as few greasy burger joints as we can manage.

Here are some examples of negative convexity. Often these actions turn out badly because they “open the door” to unknown bad things.

Giving your opinion
Sad to say, no one wants to hear your opinion. And the louder your opinion, the less someone wants to hear it. Furthermore, down the road, that person may retaliate in some way if your opinionated remark has injured their self-esteem. Oh…another minor point…your opinion could be totally wrong. The point is, favoring the world at large with your many "fascinating" opinions is a virtual “kick me” sign to the universe, and can open the door to a surprising number of repercussion, many of them painful

Using credit and leverage
The more you lever up, the more it can work against you in the exact proportion to the amount you have borrowed/leveraged. Much of the financial agony of the past few years was caused by huge amounts of leverage, from homeowners putting up miniscule amounts  as down payments, to giant banks borrowing against those same mortgages at 30-to-1 margins. There are even hints that the U.S. Government could lose it’s own Triple-A credit rating because of too much borrowing. Again, it is the “unknown” side of the coin that is the bombshell. You don’t know what will precipitate the destructive side of leverage: you might lose your job; your industry could go into a slump; you could have miscalculated the whole nature of the bet you made. The fact is you just don’t know, but one thing you can know is that leverage is a door to the unknown. You never know what might walk through.,

Avoid washing your hands, annual checkups, exercise
None of these actions are a ticket to doom. What they are is a ticket to the unknown. You don’t wash your hands? Well…perhaps you will never get sick from some germ. Or maybe you’ll be sick 2,3,or 4 weeks per year and it will just “slip under the radar”, with those lost weeks of productivity, family activities, friends, etc just “gone” without your even thinking about them.

Skipped your checkup? So what? You’re feeling fine. Maybe there’s nothing there. Or maybe you have something quiet and chronic that could chew up a few years of your life, but you won’t know that for a while.

Don’t exercise enough? Maybe you lose an hour of life per hour of exercise…I don’t know. Maybe you lose just a teeny biit of flexibility over time, so when you have to lift that heavy object, instead of some aches and pains, you rupture something. Again, these are issues of playing the odds. Of letting the unknown, or ignored, into your life. And once it gets in, because convexity tends to increase, you may find yourself in the “steep part of the curve of “hurt”, when you never needed to be there.

More on Negative Convexity in another post.

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