Never Multiply by Zero
I listened to the ‘Modern Wisdom’ podcast episode with Ryan Holiday last week and one concept ( link to that segment ) has been on my mind ever since:
“Never multiply by zero.”
It was essentially a conversation about avoiding risks with potentially ruinous consequences, couched under the mathematical concept of ‘any sufficiently large number multiplied by zero still equals zero.’
This can apply to life, business and money and I think it’s an essential risk mitigation strategy for life.
No matter how great your life is, no matter how successful you are, no matter how smart you are with your normal risk strategy, multiplying by zero (taking a ruinous risk) can still get you to zero.
Some examples they used in the podcast were (they are closely paraphrased quotes from their examples in the episode):
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Financial Ruin/Leverage: In financial dealings, using too much leverage when trading and going bankrupt are bad ideas because they effectively multiply your efforts by zero, thus ending the game.
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Health/Safety: You could diligently look after your health by eating a grass-fed diet and avoiding things like seed oils, etc. However, if you decide not to wear your seat belt in the car one day, the outcome could result in a “sure zero”.
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Life Goals/Teen Pregnancy: A teenager might work hard on their education, make it to university, and be about to start a new adventure, but then they have unprotected sex and get somebody pregnant. While this is “Not quite zero,” it represents a “big change” that disrupts the planned trajectory.
I was brainstorming other ‘multiply by zero’ type events and came up with a few additional ones. I’d be curious to get your reply to this message if you can think of other ones:
- Drunk driving
- Personally guaranteeing a business (I’m thinking about people who open a restaurant (probably a 90% chance of failure) and personally guarantee it with their own assets
- Buying a portfolio of rental properties with little money down and/or adjustable rate mortgages with balloon payments just hoping for the best down the road and having little margin for error.