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Leverage isn't scary. Look at the site you're on - the entire startup culture is based on leverage. Leverage is a way to increase both the risk and reward. It
by jaggederest 14y ago
Leverage isn't scary. Look at the site you're on - the entire startup culture is based on leverage.
Leverage is a way to increase both the risk and reward. It only increases volatility, not absolute ratios.
- gfodor 14y agoVolatility, when it comes to large numbers with dollar signs next to them, is scary. Startup culture is not leverage in the sense I am using here. Startup founders are generally leveraged on the upside but not on the down. They own calls. If you don't believe me consider that sometimes the powerball jackpot every few years has a positive expected return. Unless you are going to live forever, you need to be mindful of volatility.
- brc 14y ago>Startup founders are generally leveraged on the upside but not on the down. I don't agree with this at all. This assumes zero costs on the part of the founder when it comes to a startup. There are significant costs, including extra work, low or no salary, and opportunity costs. I agree that the potential upside is much more like a call than a long position, but all calls have a premium cost, and have a much higher risk of being out the premium cost with no reward.
- gfodor 14y agoWhere did I say there was no cost? My point is exactly what you just said.
- moocow01 14y agoLeverage by its definition is scary. As you said increased risk/reward... $X,XXX,XXX - 50% chance of 1.2x, 50% chance of 0.8x - not so scary $X,XXX,XXX - 1% chance of 50x, 99% chance of $0 - scary Its only not scary if you have an infinite amount of money and infinite number of rolls of the dice.
- anthonyb 14y agoYour second bet should be greater than 100x for it to be worthwhile. Still scary, but not for the reasons that you were thinking of.