HEDGING THROUGH EXTREMES

In this context, I'm using the topic of career / jobs to illustrate this point, but the concept still has universal application (business, programming, dating, etc).

from a career pov

Most people only have 1 job at a time, meaning 100% of their professional life is allocated to a single shot. It's often a challenge to balance stability and upside in this single role.

The Ideal Scenario

Each of the above career paths requires its own set of optimizations (skills, experience, etc). In the best case, you specialize and go all-in. The steps to land a job at Google are much different than those to become a unicorn founder.

Issues with this approach

1 ) You reduce optionality as a result of specialization

2 ) You forego the benefits of the other side

A potential solution

Pick the middle option and capture part of the upside of Google (stability) and part of the upside of being a founder (upside). In the graph above, that's becoming an early-stage startup employee. In most cases, I think this is how hedging is approached. Picking the middle option.

A potential counter

Rather than providing the best of both worlds, in reality, I believe the middle option is often such a watered-down version of each side to the point where either benefit is no longer achievable. It aims to accomplish everything and achieves nothing.

A different approach

I think one of the pitfalls in these situations is assuming that any allocation has to be 100%. Offering a different approach, we can instead hedge by splitting up our allocation to 2x at 50% and splitting across each extreme. In this scenario we're still hedging, but doing it in a way where we get the highest-efficiency form of each side.

A Practical Example

1 ) Stability [50%] - you get a part-time job for $6k a month to cover bills

2 ) Upside [50%] - you build your company with all remaining time

You create balance by combining the highest-efficiency forms of each extreme.

Takeaway

The general sentiment is that at times the right way to hedge is by combining parts of extremes rather than a full middle option. Visually, this looks like an inverted bell curve.