Probability, Odds, and the Art of Failure

Failing Early and Embracing Harmless Failures

Event judgment involves two dimensions: probability and odds. By analyzing the data, one can calculate the expected returns. Following the principle of expected returns when making decisions is a fundamental rule.

Probability:

1. I have read numerous stories about investors, traders, and entrepreneurs, and I am convinced that everyone experiences failure. Traders may not make profits for ten years, and entrepreneurs may face consecutive failures. However, they eventually achieve great success.

2. Since failure is common among everyone, I can relax and even tell myself that "fire tempers steel," and "no pain, no gain." The important thing is:

   1. When lacking experience (with a low success rate), it is essential to control the cost of failure and ensure it is bearable. For example, if you are new to market trading and lack experience, it is advisable not to go all-in at once. Start with only 25% of your capital to gain experience.

   2. Optimize your success rate by iterating and learning from mistakes. It is already challenging to identify the reasons for failure, but it is even more difficult to design effective mechanisms to avoid those mistakes. In the world, it often takes multiple repetitions of the same mistake before it can be corrected.

   3. This leads to a thought: if you can make all the mistakes you are bound to make early on, record and review them, it is equivalent to increasing your future success rate. Moreover, when you are young, you have greater neural plasticity, better memory, and a greater capacity to absorb knowledge. You also have a stronger ability to accept failure. I am grateful that within just over two years of entering the market, I experienced a boom and bust cycle (21-22) in which a bubble inflated and burst. Such emotional memory is invaluable.

Odds:

1. Play games with high odds, where the cost of failure is small and the benefits of success are significant. (The so-called risk-reward asymmetry). In these games, even if the probability of failure is high, they are worth trying.

   1. For example, when encountering impressive experts, it is worth approaching them and socializing, even if the chances of rejection are high. The only loss is a temporary blow to your ego. However, if the expert turns out to be kind and helpful, it can greatly benefit personal growth. (Risk-reward asymmetry).

   2. Similarly, writing this blog carries risk-reward asymmetry—it may go unnoticed, but by persisting, it enhances my thinking abilities and gains recognition from some of my friends. This significantly reduces the transaction costs of my future endeavors (the so-called personal brand).

   3. Currently, I am exploring job and internship opportunities in Shanghai. I am 22 years old, open-minded, energetic, and ambitious. Please feel free to contact me privately, and I also appreciate it if you share this with friends who may have relevant needs. Thank you. (For me, even writing this passage represents risk-reward asymmetry).

2. In trading, you can use the Kelly Criterion to quickly determine the betting proportion. "Betting proportion = (Net odds * Probability of winning - Probability of losing) / Net odds." Of course, different individuals have different judgments regarding the probability and odds of the same event. After all, everyone has read different books, experienced different situations, and gained different insights. It's all about personal development.

The Art of Failure:

1. For a long time, I was taught to avoid mistakes, to avoid failure, and to maximize the probability of getting things right. I used to find failure difficult to accept. I feared rejection, hesitated to try new things, and worried about being judged by others.

2. Recently, I have become more accepting of failure and have even started to enjoy it to some extent. Failure is a powerful feedback that screams, "You must have done something wrong." While it may not always be immediately apparent why we failed, the accumulation of such experiences is meaningful.

3. Sometimes, I even approach tasks with the mindset that I am bound to fail (and it doesn't matter if I do, but it's great if I succeed). Surprisingly, I often find that I had greatly underestimated the probability of success. Such experiences are also valuable.

4. This can be seen as a mindset of strength, focusing on reality, interests, odds, and probabilities.

5. Once again, I emphasize the importance of failing early and embracing harmless failures. It's time to put these ideas into action.