Success and Convexity Part 4: More on Positive Convexity

This is post 4 in my series on convexity. For the purposes of these posts, out definition of positive convexity will be opening the door to many good things, while limiting the access of incoming bad things.

I mentioned in my last post two secrets to adding positive convexity to our lives:
1. Hard Work and
2. Exploratory behavior.

Here are two more:

3.Margin of Safety

Shakespeare said “discretion is the better part of valor”. Woodworking experts admonish “measure twice and cut once”. Billionaire Warren Buffett and his mentor Benjamin Graham emphasized investing with a “margin of safety”, a level of business value that would endure no matter what the price or vicissitudes of the business, thus making it safer to invest in. Airplanes and space shuttles are designed with redundancy: multiple systems that can be pressed into service if a main system (hydraulic, navigation, etc) fails.

For us to “spread our wings” in our chosen field, to take advantage of the many opportunities for positive convexity (strings of good outcomes building on each other), each step should be taken only after the worst-case scenario is considered.’’

A simple example would be buying a house. If you, for instance, were to buy the house with 100% cash, you could take full advantage of the positive convexity of the purchase: the potential that your investment would increase over time. Furthermore, if you paid with cash, you would have no worries about meeting the mortgage, ever, thus you would have the absolute minimum chance of losing that house. This would meet our laymen’s definition of convexity of maximizing the planned and unplanned positive outcomes, while cutting off the risk of outsized negative outcomes.

Do the scheduled maintenance on your car. Get your checkup. Eat your bran flakes. File your taxes on time. Why? Because these actions generate margins of safety, allowing you to “blossom” the rest of the time. They “cut off the tails” of the “bad” side of the “curve”. They limit your downside, and then your creativity and drive can generate the”upside”.

4.Noticing and recording

Noticing and recording is an amazingly effective method of creating positive convexity. Walking around with a notebook or voice recorder will exponentially increase the number of “positive inputs” that you experience everyday. In a moment, a million-dollar idea can be captured before it disappears into your unconscious. Or you may see something: a book, a piece of property, a new product, etc and note it down for future reference. Many of us get terrific inspiration when we are out walking or driving…the kind of inspiration that might change your life. If you take 3 notes a day that’s over a thousand new inputs per year. One out of a hundred might even be a breakthrough. And ten breakthroughs a year is a lot of positive convexity.

5. Consistency

Woody Allen once said "eighty percent of success is showing up". A pithy and ever-so-true Success Secret. I went to the grocery store today and they didn't have my favorite focaccia bread. Big deal? Sure, but now, in the back of my mind, I have this meme that reminds me:  "well, if you go out of your way, they might not have the focaccia". Similarly, if you don't show up, your clients, friends, etc may start taking you off the "guaranteed list" and putting you on the "maybe" list. On the other hand, if you always pick up the phone, meet your deadlines, get your eight hours sleep, etc, you create a "base" from which to build. You certainly wouldn't like it if various bodily organs worked "inconsistently".  How could you get through your day?  We should expect of ourselves the same consistency that we expect of many of the small, but priceless goods and services we enjoy today without even thinking about it. Many nations don't have consistent power, water, and other infrastructure. Whole countries get avoided by international investment because you can't build a factory there, because you don't know if the lights will be on. Consistency seems like a little thing, but it is a base from which positive convexity can be built.