Should Your Hedge Your Bets?
Hedging is used by investors to eliminate or mitigate the risk of a position and to offset losses. It works by taking an opposite position in a related asset.
For example, a farmer might hedge the price risk of grain by negotiating a forward contract, whereby the farmer agrees to deliver a certain amount of grain to a buyer for an agreed price at some point in the future.
Another example of hedging in day-to-day life might be betting against your favorite sports team. This is a form of emotional hedging whereby if your team loses, at least you still win, and vice versa.
You might even hedge your relationship bets by seeing multiple people, or dating one person whilst ‘breadcrumbing’ another.
Breadcrumbing is when you lead someone on romantically through social media or texting. It basically means they’re stringing you along, but with the help of modern technology.
But is hedging always advisable?
To answer that, we must stress that hedging is based on a fundamentally uncertain view of the world.
We hedge because we’re not quite sure our investment in Amazon will pay dividends, or that our team is going to win the Superbowl.
When outcomes are uncertain, it makes sense to experiment and dip our toes in the water, rather than go all-in.
But sometimes, we benefit by being certain about the uncertain.
As is the case on the poker table, providing we have the right hand, we can multiply our returns by going all-in. And as is the case on the poker table, we often won’t know we’ve got the right hand until we’ve shown our cards.
This can be as true in business and the arts as it is in love.
Countless startups had to toil for years before becoming ‘overnight’ successes.
Netflix, for example, was founded in 1997 off the back of an investment from co-founder, Reed Hastings. However, it endured countless setbacks, and it wasn’t until its $50 million sale offer to Blockbuster was turned down that the team did everything they could to find a winning business model. It wasn’t until 2001 that the company started to gain serious traction, going public in 2002 with its IPO. The rest, as they say, is history.
On not hedging, Netflix co-founder Marc Randolph says that “the anxiety of biting a bullet won’t last. But the enjoyment of making that decision will last forever. Go all in.”
Echoing Randolph, Bill Campbell — the late business coach to Steve Jobs, Eric Schmidt and Jeff Bezos, among others — urged his mentees to commit. “You can’t have one foot in and one foot out, because if you aren’t fully committed then the people around you won’t be either. If you’re in, be in.”
Sometimes, it pays to have a ‘reality distortion field’, something the likes of Steve Jobs and Elon Musk have used to galvanize their people to scale to new heights.
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The WorkFlow podcast is hosted by Steve Glaveski with a mission to help you unlock your potential to do more great work in far less time, whether you're working as part of a team or flying solo, and to set you up for a richer life.
To help you avoid stepping into these all too common pitfalls, we’ve reflected on our five years as an organization working on corporate innovation programs across the globe, and have prepared 100 DOs and DON’Ts.
