Aye, that’s a good pattern. I’m having some trouble articulating this, but there’s something about the risk-taking that these individuals do that’s worth copying. It’s something like … you’re stretching yourself for a life changing outcome, and if you fail you’re definitely going to take a multi-year hit, but at no point are you at risk of being wiped out. Whereas most VC-funded startups are definitely a ‘just barely positive expectation bet’.
So:
- WWII activities excepted, Stanley Ho’s business bets were of this sort
- After the close call in Aden, Dhirubhai Ambani is never in a situation where he could’ve been wiped out (this changes later, but at least not during his rise).
- B.C Lee was also never really at risk of being wiped out in any of his business bets, so long as he survived.
- Ditto for Robert Kuok.
You see this also in Charlie Munger’s life, where he took increasingly large loans on his real estate bets. This seemed risky, but both Janet Lowe (Munger’s biographer) and Munger himself notes that none of these deals were ever going to wipe him out if any of the projects failed:
Much later Munger would say, in a Berkshire annual shareholder meeting: “We’ve been demonstrably foolish in almost every operation having to do with real estate that we’ve ever touched.” And whilst that might have been true in the context of Berkshire (which acts as a passive investor in real estate deals), Munger made it work for himself as an active developer, if at least for a brief period in the 60s. Perhaps the terms of the debt he took, and the Los Angeles-specific tailwinds at his back made the risks worth it:
When he’d ventured into real estate, said Munger, the situation seemed less risky. “I never thought I’d lose everything. Real estate took leverage, but the development process always had risk limits in place (emphasis added). The big loans had clauses that we’d guarantee completion, but we didn’t have to pay the money back if the completed project couldn’t be sold above cost.” In case the condominiums didn’t sell, the bank might take ownership of the property and Munger would be dented but he would not be ruined.
The anti-example, and one where I wouldn’t recommend copying, is Sam Zemurray:
Zemurray reaped his first harvest that year, and soon, he went out once again to purchase even more land, but he was already overextended, and had nowhere else to turn to. He was deep in debt. While others may have stopped here, Zemurray’s hunger and drive was insatiable. While no one could say for sure what “unorthodox sources” he borrowed the money from, speculated that it was on “stringent terms, at rates approaching 50 percent.” And it was definitely risky enough that his business partner refused to go any further, leaving Zemurray to buy out his partner’s share of the company.
This could very well have turned out badly for Zemurray. He lucked out. We live in the small handful of universes where he survived — not the multitude of universes where he would’ve been a footnote in history.
Edited to add: I know that a) this is an irrelevant sidenote, and b) this is the real plot twist at the end of Zemurray’s biography The Fish That Ate The Whale (so caveat emptor):
Spoiler Alert
Due to his influence over the banana republics, Zemurray played a critical role in the creation of the nation of Israel. This revelation is slipped at the very end of the book, almost as an afterthought. He was a Jew, and delivered the necessary votes in the UN. He also shipped weapons on banana boats to Israel during their War for Independence (Cohen writes: “it says vegetables, but it smells like gunpowder”). So Zemurray being wiped out early in his career would’ve resulted in a very different world we live in today.