Survive first to grow later

“The essence of investment management is the management of risks, not the management of returns.”- Benjamin Graham

If you can currently afford a materially comfortable life, would you be willing to play Russian roulette if winning gets you One Billion Dollars? Think about this for a moment.

We will get back to this at the end of this article.

A little bit about risk

Taking no risk is the biggest risk of all but then we do not need to worry about this because we always face risks. We risk death every moment that we are alive. We risk accident every minute/mile we are on the road. We risk failure every time we take up a project. We risk stomach upset (or some other health issue) every time we eat out. We risk falling ill if we do not eat. Risk is present, always.

But what is risk? Uncertainty is generally considered risk. In stock markets risk is measured by volatility (of stock prices), which in turn is measured by standard deviation. Likelihood of not being able to achieve a goal/target is probably the most common formal measure of risk. This may make sense to use in formulae but is not always intuitive — it is vague when we try to apply it in everyday life. For example, 1% likelihood of not achieving a target still means a distinct likelihood of not making the target. This is because you generally either achieve a target or not. Either you had an accident or not. You are either alive or not. You are either sick or not. This is what makes risk not very easy to grasp. However, it is not difficult to manage because managing risk, after all, involves reducing its likelihood — not even necessarily eliminating.

One of the best books I read on risk is called “Against the Gods: The remarkable story of Risk” by Peter Bernstein — it provides a great basis for understanding the history of measurement and thereby management of risk. Personally, I think of risk as possibility of ruin. “Ruin” defined as condition(s) where the minimum expectations or standards of an outcome is/are breached.

And a rather unintuitive truth I have come to realize (from personal and vicarious experiences) is that once one is firmly on the path to a challenging target, managing risk becomes more paramount than any heroic efforts to achieve the target. In other words, one can significantly increase the chances of success by focusing more on managing and reducing risk than by pursuing spectacular growth possibilities. Assumption is that one is already on a suitable (risky) path to achieve extraordinary success.

In examples

In a marathon race/run, if in the first half of the run, one runs at a faster clip than one trained for — even if ever so slightly, the resulting capacity uptake will render one to slow down later in the run such that one will end up overall slower than the target pace or even not finishing the run altogether.

In the game of Cricket, barring a few apparent exceptions, most greats such as Rahul Dravid, VVS Laxman, Sachin Tendulkar, Ricky Ponting, Joe Root etc won matches for their teams by hanging around long enough without getting out (to ambitious shots). Their natural talent combined with deep training will ensure that runs flow — they largely focus on managing risk — not getting out.

Hitting the ball out of the park is glamorous but what wins you matches is hitting runs at a good clip and not getting “out”. Similarly for bowlers, bowling above 150 Kilometres per hour will give instant celebrity status and glamour but only getting wickets regularly or restricting runs constantly will win matches. Bowlers such as Glenn Mcgrath, Bhuvaneshwar Kumar must have known this all too well, given their impressive track records.

Seat belts and helmets are great risk management tools — they do not eliminate the possibility of ruin but surely significantly reduce the chances of death in case of accidents.

“The first rule of investing is don’t lose money; the second rule is don’t forget Rule №1.” — Warren Buffett

Defensive approach?

On the face of it, this focus on “risk” may come across as defensive and it will be, if the entire strategy is around avoiding risks. However, focusing on avoiding ruin and limiting downside while on a path of growth is anything but defensive. Getting on a growth path itself is taking a stance of offence. And once such a stance is taken, managing risk and being in the game is lot more important than any glamorous or impressive maneuvers.

Another question — why does one need to be on growth path at all? If there is no need to, one should avoid taking any risk. Many a people have lost serious wealth by taking on risks that they did not need to (in pursuit of high returns). Many a people have spoilt their health by continuing on unfulfilling high pressure corporate careers even when they did not need to. But not everyone can avoid corporate careers or avoid taking on risk — they will be served well, if they focus first on avoiding or limiting downside.

Whether one is considering changing roles/jobs, considering investments in risky assets such as equities, it is paramount to always focus on survival first and growth later.

“The key to risk management is never putting yourself in a position where you cannot live to fight another day.” — Richard S. Fuld, Jr.

(ironical, given the fate of Lehman Brothers)

Back to Russian roulette — does it make sense to play this game no matter how big the prize is?


  1. Desperate circumstances may make one take “ruinous” risks (when all other alternatives are equally bad or worse) but I believe that such a situation is probably only theoretical for anyone reading this article
  2. For formal/rigorous method of avoiding ruin in any risk venture, “Kelly Number/Criteria” makes for fascinating and pertinent basis.


Thanks for your time. In this newsletter, I share my learnings that can help you improve your decisions and make meaningful progress on your goals and desires. I share stuff that I have personally experimented with. To this extent, this is not traditional “self-help” advice.

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