Guy Spier: Why It’s Risky Not To Take Risks

During his recent episode with The Investor’s Podcast, Guy Spier reflects on taking risks, particularly for young people in their twenties. He believes that this is the ideal time to take career and financial risks since there is ample time to recover from potential failures.

He advises embracing opportunities like startups and speculative investments because even failures provide valuable lessons. Spier references Mohnish Pabrai’s portfolio strategy of taking calculated risks on asymmetric opportunities, where potential gains far outweigh losses.

Ultimately, Spier argues that not taking risks while young is itself a significant risk, as it may lead to regrets later in life.

Here’s an excerpt from the interview:

And then what I would also add is two thoughts that come to my mind on taking risk. I actually think that I’ve been extremely suboptimal in terms of taking risks. So first of all, when you’re in your twenties, you should take a lot of risks—not with your life, but career risks, financial risks—because you have lots of time to recover from them.

So it is suboptimal when you are young, not to go to work for that startup, not to invest in that speculative stock, because when you take a risk and it works out, you win, and when it doesn’t work out, there’s an enormous learning opportunity. I think that Mohnish, in many ways, runs his portfolio this way.

If you are diversified in as few as 10 very asymmetric outcome-type things—unknown and unknowable, but with huge payoffs if they work out—I guess I’m describing “heads I win, tails I don’t lose much.” You have 10 of those, and you should do alright, even though you’ll have a pretty high error rate.

And so, maybe when you’re young, not taking a risk is, in a way, the biggest risk of all. I’ve actually exhorted younger people, people in their 20s, saying you must take risks. You’ll regret it. Don’t be the guy who doesn’t take risks until he’s 40 and then starts taking risks when you can’t recover from them.

So, that’s a long way of saying, I really don’t know. Well, just to go back to your question: The investor says, “Yeah, but I’ve taken less risk in my portfolio.” And then they’ll show, they’ll maybe come with calculations like variance, Sortino ratio, or drawdowns, and there’s no real way of deciding whether that’s the case or not.

You can watch the entire interview here: