In my line of work as a Financial Advisor for Morgan Stanley, risk management is just as important as establishing return objectives. Reid Hoffman and Ben Casnocha explain how we tend to associate risk "with things like losing money in the stock market or riding a motorcycle without a helmet" (do you know it's legal to ride a motorcycle without a helmet in Hawaii?). But risk encompasses every aspect of our lives. Risk has played a major role in my career as well as my personal life and even my son's life.
As my son, Daniel, prepares to embark on his last year in high school, his college decision is fraught with risk. Daniel has a strong interest in graphic design, but he's struggling with the choice between attending a traditional four-year university or an art school. Obviously, attending a traditional four-year college will give him more options in case he decides not to major in graphic design, but the graphic design program at an art school will most likely offer more of the type of classes he's interested in taking.
Daniel tends to be a good test taker and scored over 2100 on the SAT, including a perfect score of 800 on the Critical Reading section of the test. Unfortunately, his high school GPA is 3.40, which means he probably won't gain admission to any of the University of California schools. After many hours of exhaustive research, I created a list of five schools that might be a good fit for him:
Daniel tends to be a good test taker and scored over 2100 on the SAT, including a perfect score of 800 on the Critical Reading section of the test. Unfortunately, his high school GPA is 3.40, which means he probably won't gain admission to any of the University of California schools. After many hours of exhaustive research, I created a list of five schools that might be a good fit for him:
- Chapman University
- University of the Pacific
- California Polytechnic State University, San Luis Obispo
- California Polytechnic State University, Pomona
- Chico State University
Daniel also wants to add Whitman College and Willamette University to my list.
Daniel prefers to attend a small school. That is why Chapman University, University of the Pacific, Whitman College and Willamette University appeal to him. Unfortunately, these schools are very expensive with tuition in the $36,000 to $40,000 range. The other schools on his list are public schools so the tuition is reasonably affordable (in the $6,000 to $8,000 range), but they are fairly large schools with a student population ranging from 15,000 to 25,000 students. Choosing the right college will involve taking intelligent risks for Daniel. If he decides to attend a small private school, he will be burdened with a hefty student loan (unless he receives a generous scholarship). Will attending a pricy, private college pay off in terms of helping him land a job as a graphic designer when he graduates? If he attends a public university in California, will he feel "lost" in a large student environment? These are not easy questions to answer.
I'm glad Daniel is not graduating from college this year. I hope the job market for college graduates improves by 2018. My heart goes out to the 2013 class of college graduates. According to a study conducted by the Center for College Affordability and Productivity, "about 48 percent of employed U.S. college graduates are in jobs that the Bureau of Labor Statistics (BLS) suggests requires less than a four-year college education. Eleven percent of employed college graduates are in occupations requiring more than a high-school diploma but less than a bachelor’s, and 37 percent are in occupations requiring no more than a high-school diploma." The competition for jobs is particularly fierce because there are so many highly-qualified applicants, but only a few good job opportunities. If you have talents in math or science, you can choose a more established route to success such as pursuing a career opportunity in one of the STEM (science, technology, engineering, and medicine) professions. But if you didn't major in one of the STEM disciplines and are willing to intelligently take on risk, you may discover opportunities others miss.
In the visual summary of the book, The Start-Up of You: Adapt to the Future, Invest in Yourself, and Transform Your Career, Reid Hoffman and Ben Casnocha wrote, "Every possible career move contains risk. If you don't have to seriously think about the risk involved in a career opportunity, it's probably not the breakout opportunity you're looking for." Here are some of my favorite tips from Hoffman and Casnocha on how to think about the risks associated with opportunities:
- If you can tolerate the WORST-CASE OUTCOME, be open to it.
- If the worst-case outcome means death, homelessness, or being permanently unemployed, AVOID IT.
- DON'T CONFLATE UNCERTAINTY WITH RISK. There will always be unknowns. This doesn't mean it's risky.
- You can never fully predict how or when ILL FORTUNE will strike. Instead of placing faith in your ability to anticipate all that could go wrong, BUILD UP RESILIENCE to unimaginable blowup.
- Achieve stability by introducing low levels of volatility -- introduce SMALL RISKS ON A REGULAR BASIS.
- Those who REGULARLY DEAL WITH SMALL RISKS will never starve. They will never be ENGULFED BY THE BIG RISKS.
My very first sales job was with Metropolitan Life in Aiea, Hawaii. Working in sales was a huge risk for me, but I knew that if I failed, I could always try something else. Fortunately, I did very well during my first year in the business. I was one of the top ten life insurance agents in the San Francisco Bay region, which included Northern California, Oregon, Washington, Alaska, and Hawaii.
When I decided to move from insurance to investments by working for Merrill Lynch, the worst-case outcome was not passing the six-hour Series 7 examination. Individuals who want to sell any type of securities must take the Series 7 examination (formally known as the General Securities Representative Examination). At most brokerage firms, individuals who wish to sell securities are given only one chance to pass the Series 7 exam. Failure to pass the exam results in immediate job termination. But since I had studied for two months prior to taking the exam, I was confident I would pass. If I didn't pass, I knew I could always go back to selling insurance or try to take the exam again at a different brokerage firm.
Hoffman and Casnocha's advice, "Achieve stability by introducing low levels of volatility -- introduce small risks on a regular basis" really resonated with me. Many of our clients at Morgan Stanley invest a portion of their assets in the iShares MSCI USA Minimum Volatility Exchange Traded Fund (USMV). "Exchange traded funds (ETFs) that hold low-volatility stocks have a record of posting smaller swings than the broader market. These stocks also tend to have solid earning profiles and pay out substantial dividends. These types of funds aren't designed to beat indexes like the Standard and Poor's 500-stock index or the Dow, but instead limit price swings. But recently, both the PowerShares Standard and Poor's 500 Low Volatility ETF and the iShares MSCI USA Minimum Volatility ETF rose more than 9% versus a 7.1% increase in the blue chips." Source: Low-Volatility ETFs Draw Strong Flows Between DJIA Milestones
The concept of low or minimum volatility can also be applied to one's career as well as personal life. For example, if you're thinking about becoming an entrepreneur, before you quit your day job, try out your new career on a part-time basis at night and on the weekends. After you earn enough money from your part-time work to support yourself and your family, then you can quit your day-time job.
The concept of low or minimum volatility can also be applied to one's career as well as personal life. For example, if you're thinking about becoming an entrepreneur, before you quit your day job, try out your new career on a part-time basis at night and on the weekends. After you earn enough money from your part-time work to support yourself and your family, then you can quit your day-time job.
Before you decide to marry someone, make sure you go away with him or her on an extended trip for at least a week or better yet, two weeks. The cohabitation question is tricky. Some of my friends lived with each other before they got married and they're still happily married, but I also have friends who lived with a significant other for a year or two and their relationship did not result in marriage. I think if you view cohabitation as an intentional step toward marriage, rather than as a test for marital compatibility, cohabitation could work.
Another way to introduce small risks into your life is by taking classes outside of your field of study. Imagine how boring computer typography would be if Steve Jobs had not studied calligraphy class while he was at Reed College!
As a Financial Advisor for Morgan Stanley, I spend most of my day engaged in prospecting and sales activities, but I'm also interested in learning more about social media marketing. In order to augment my self-taught skills in this area, I plan to take the following social media classes through the Outreach College program at the University of Hawaii at Manoa this summer:
- Introduction to Social Media
- Search Engine Optimization: Introduction to Search Marketing
- Introduction to Communication Skills via Social Media I
- Introduction to WordPress
- Advanced Search Engine Optimization
- Networking Your Business on Twitter
- Social Media Marketing: Developing an Effective Strategy
- Intermediate WordPress
- Practical WordPress: Beyond the Basics
- Writing for the Web
During my free time, I read articles online and books about social media.
As you go about your day, try to find ways to introduce small risks into your life. If you fail, it won't be the end of the world and who knows? The small risk you choose to embrace today could lead to a major breakout opportunity tomorrow.
