Tails, You Win You can be wrong way more than half the time and still make a fortune

Something I’ve learned from both investors and entrepreneurs is that no one makes good decisions all the time. The most impressive people are packed full of horrendous ideas that are often acted upon.

Take Amazon. It’s not intuitive to think that a failed product launch at a major company would be normal and fine. Intuitively, you’d think the CEO should apologize to shareholders. But CEO Jeff Bezos said shortly after the disastrous launch of the company’s Fire Phone:

“If you think that’s a big failure, we’re working on much bigger failures right now. I am not kidding. Some of them are going to make the Fire Phone look like a tiny blip.”

It’s okay for Amazon to lose a lot of money on the Fire Phone because it will be offset by something like Amazon Web Services, that brings in significant revenue. Tails to the rescue.

Netflix CEO Reed Hastings once announced his company was cancelling several bi-budget productions. He responded: “Our hit ration is way too high right now. I’m always pushing the content team. We have to take more risk. You have to try more crazy things… because we should have a higher cancel rate overall.”

These are not delusions or failures of responsibility. They are a smart acknowledgement of how tails drive succuss. For every Amazon Prime or Orange is The New Black you know, with certainty, that you will have some duds. Part of why this isn’t intuitive is because in most fields we only see the finished product, not the losses incurred that led to the tail-succuss product.
-Morgan Housel, The Psychology of Money

Its not whether you’re right or wrong that’s important, rather think of it in terms of how much money you make when you’re right verses how much you lose when you’re wrong. You can be wrong 95% of the time and still make a fortune.

“I have to be wrong a certain number of times in order to be right a certain number of times. However, in order to be either, I must first make the decision.”
-Frank N. Giampietro

“What’s the most critical factor in any business decision you’ll ever have to make? Basically, it boils down to this question:  If this all crashes, will it bring the whole house tumbling down like a pack of cards? One business matra remains embedded in my brain – protect the downside.”
-Richard Branson

Two great quotes from T. Harv Eker:
“Rich people believe ‘I create my life.’ Poor people believe ‘Life happens to me.’”
“Rich people focus on opportunities. Poor people focus on obstacles.”