There are a few jobs around the house that I’m somewhat capable of doing myself. One of these is cleaning my gutters. Sure, I can get out a ladder, climb up and scrape them out myself. Or, I can hire a professional who does it on a regular basis and has all the right tools (and experience) for the job. The cost of getting my gutters cleaned is not just the cost of labor. It’s an undefined (insurance?) premium too.
Note: It’s hard to fall off a ladder you never climb up.
Many years ago, I cut down a “small” tree in my backyard. As I was cutting it up into manageable pieces and hauling it up to the street, I was struck by how long the job took me and how much each individual piece weighed. I thought about the damage the tree could’ve done if it fell the wrong way.
I miscalculated the risk involved.
I often wonder what other “blind spots” I have towards risk.
I’m working my way through Nassim Taleb‘s Incerto series. Fooled by Randomness is especially helpful in thinking about risk. Taleb often talks about running simulations (using Monte Carlo software).
You can, and perhaps should, think about life as a range of possible outcomes (simulations). If I climb a ladder a million times, what are the chances that I would fall one or more times? Of the times I fall, what are the chances that I sustain a serious injury? Am I prepared for the worst-case scenario?
In the investing world, risks are often managed using various financial instruments. This is known as hedging. In real life, risk management can be less straight-forward. The world is filled with risk and we can’t eliminate or outsource all of them. However, we should think about which ones are worth taking.
I’ll end with this quote:
“All I want to know is where I’m going to die so I’ll never go there” – Charlie Munger(?)