HOW MUCH RISK CAN YOU EAT?

Depending on how much of your original investment you are willing to lose if your bet fails, you can calculate something called your ‘risk appetite’.

There are various ways to increase your money. They term these activities as ‘investments’, however, they generally involve making a bet. A bet that the endeavour would be successful.

Generally, the higher the percentage of increase you stand to gain, the higher the risk of your bet failing. Now, this obviously means that some bets are safer than others.

A mixture of other factors is responsible for the risk of your bet. The time over which the return is to be realized is one factor. The management effort required to keep the investment going is another.

Depending on how much of your original investment you are willing to lose if your bet fails, you can calculate something called your ‘risk appetite’.

A typical bet could look like this:

1. You open a sports betting account.

2. You fund it with 100 naira

3. You select 36 games and permutate wins or loses or ties

4. You see that your permutations from 100 naira can win you 28 million naira, earning a 279,999% return in just a couple of minutes

5. You wait to see if this time, your 358th time in two years, you can win 28 million naira with just 100 naira.

6. If you lose the bet your investment amount is gone, for the 358th time

Yet another bet could look like this:

1. You raise some money, from wherever, say your savings, say 28 million naira

2. You put it into a property, say, a two-bedroom apartment

3. You list it for rent at a good price, say 1.5 million naira a year

4. It is going to take you close to 20 years to receive that initial amount back as rent, but at least your property would always be there.

5. You could place a further bet and use the property as collateral for a loan while earning rent.

6. You could the property as collateral for multiple loans, with each loan ranking above the other (Hold on now, nothing in this newsletter is financial advice. Please consult your professional adviser).

However, another bet could look like this:

1. You take some money

2. You seek out an already existing business

3. You put in your money in exchange for a percentage ownership

4. You receive shares in the business at a percentage you negotiate

5. You immediately have skin in the game. If there are profits, you share in the profits. If there are losses, you suffer them as well.

Yet there is a different kind of bet:

1. You take some money

2. You seek out a business or idea that claims to use technology to power something

3. You agree to put in some money say $5000

4. You do not immediately receive a percentage ownership, you agree to defer it until some time in the future based on some event. This arrangement is generally called a Simple Agreement for Future Equity (SAFE)

5. Sit back and hope that the founders do a sincere job. If they do well enough, you could earn a 279,999% increase.

I have had to muse over how similar this last bet is compared to the first bet. Are they really that different? What do you think?

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Post-credit: Today’s episode was edited by my friend Feyisikemioluwa Akande. Thank you for your thankless effort!