Nassim Nicholas Taleb’s Rule of Thumb in Assessing Opportunity

Nassim Nicholas Taleb’s Rule of Thumb in Assessing Opportunity
  1. Look for optionality, rank according to optionality
  2. Prefer open-ended payoffs, not close-ended
  3. Do not invest in business plan but people

I pay particular attention to rule number 2 because I think this is the part most people overlook. There’s two distinct payoffs;

i. “Bounded-left” — which is limited losses and;

ii. “Bounded-right” — which is limited gains

For example, when I opt for royalties translating Rich Dad Poor Dad the payoff is clearly bounded-left. I only need to spend 1–2 months plus some money to sit down & work at cafes. I’ve read the book years before so I don’t risk not finishing the translation.

Meanwhile, the payoff is more bounded-right for my publisher. They have to shell out licensing fees and fork out the printing cost. Let’s say the initial print run is 5000 unit. The best they can do is all 5000 units being sold.

Yes, they can print more units but they’ll need more money — preferably money made from the initial print run. As for me, I don’t have to fork out any money for any extra unit printed and sold. Heck I don’t even pay a single ringgit of FB Ads to sell the book. I just enjoy more royalties for each unit sold.

Fortunately for my publisher, the bounded-right payoff is not terminal. They still can reduce their exposure to loss and make their payoff more bounded-left. They entered into an exclusive distribution deal with a national bookstore chain for a few months. In return they are paid cash in advance for the whole lot of the initial print run.

Two years later, they have covered their publishing cost and made some profit. Now it cost them virtually zero to sell the book via Google Play. Without any printing cost to bear, their payoff is now bounded-left. And of course it’s doubly bounded-left for me!