Knowing When and How Much to Bet
Life is made up of choices. And every choice is a bet. Trying a new restaurant is a bet that the food will be better than you expect. This is a micro bet. Saying yes to coffee is a bet that the conversation beats thirty minutes of work. This is a small bet. Quitting your job to start a company is a bet that you will be more financially well-off and live a more fulfilled life than if you had stayed at your old company. This is a big bet. Investing a billion dollars is a bet on astronomical returns decades down the line. This is a huge bet.
You are always betting. The question is whether you know what you're staking, what game you're playing, and whether your bet size matches your stage of life.
Bets Have Two Variables
- Life-stakes: How much this bet shifts your life trajectory?
- Choosing your spouse, dropping out, moving across the country, etc. The dollar cost can sometimes be zero, yet the trajectory cost is enormous.
- Resource-stakes. What percentage of your available resources does this bet consume?
- Capital, time, attention, energy, etc. The dollar cost can sometimes be enormous, yet the trajectory cost can be near zero (with age).
Bets Have Two Games
- Quantity. Many cheap bets. Low success rate. Power laws dominate everything: most fail, a few win big enough to pay for the rest, and make a profit on top of it. This is the game venture capitalists play.
- Quality. Few large bets. High success rate. Most of your time is spent not betting at all, just preparing for the jackpot opportunity. Buffett's positions run around 25% of his portfolio, which mechanically caps him at four to six bets per decade.
"Choose your investments like you have twenty punchcard slots in a lifetime. Each investment is a punchcard." — Warren Buffett
The lower your cost per shot, the more shots you take, and the lower your hit rate is.
The higher your cost per shot, the fewer shots you take, and the higher your hit rate must be.
Do NOT play both at the same time.
Do NOT take small bets with the seriousness of large ones, or large bets with the casualness of small ones.
Life Stage → Cost Structure → Bet Strategy → Selectivity
When you're young: Cost per small bet is near zero. Ample time, no dependencies, no reputation to protect, low burn rate. Run massive volume of small bets. Hundreds of conversations, experiments, projects that optimize learning rate and not raw outcome.
Cost per big bet is maxed out. Locking into a wrong college, company, or relationship at twenty doesn't cost you that one isolated thing. It costs you the next decade of your life trajectory. Therefore, be ferociously selective on big bets even when the dollar cost is zero, because life-stakes are the binding variable.
When you're older, it completely inverts: Time becomes scarce, greater dependencies, attention fragments, reputation matters. Minimize small bets that have now become highly costly.
Cost per big bet is now much more affordable. Capital, network, and track record have all been accumulating and compounding, increasing your resource-stakes. Your life trajectory is also mostly set, so life-stakes are lower. You can take a greater quantity and magnitude of bets without fear of altering your entire life trajectory.
Once you have mapped your age to your bet cost structure, you can determine your strategy.
Generally, the younger you are, the farther you should lean to the quantity strategy, and the older you are, the farther you should lean to the quality strategy. As age increases, life-stakes and cost per big bet decrease while resource-stakes and cost per small bet increase.
Once you have determined your bet strategy (quality or quantity), selectivity should follow.
If you are playing the quantity game, you don't have time or resources to vet each bet, due to the sheer volume you are operating at, and thus selectivity naturally drops. Every second deciding whether to take a coffee chat is missing out on a coffee chat you could be having right now.
If you are playing the quality game, you have plenty of time and resources to vet each bet since there are so few bets to vet, and thus selectivity naturally increases. Every second making small bets, is time spent not preparing and looking for the big bet of the decade.
If older people should take more big bets, why does Buffett take so few?
The answer lies in the definition of a "big bet" itself.
When a young person says "big bet," they mean life trajectory. When Buffett says "big bet," he means portfolio-fraction. These are correlated for young people because every life-stakes bet also consumes a large fraction of their resources. However, they are completely decoupled for Buffett because his trajectory was set fifty years ago. His life-stakes are near zero on every financial bet he makes.
So Buffett isn't taking fewer trajectory bets (because almost any bet he takes cannot meaningfully alter his life trajectory at 95), he's taking fewer portfolio-fraction bets, because at his scale each bet is enormous and his selectivity has become correspondingly high.
Looking at his small bets, it's essentially zero. All his bets are large in resource-stakes. Therefore, his big-to-small ratio is functionally infinite. Buffett is playing a pure quality game on the only dimension still binding him.
A bet's size has two variables: Life-stakes and Resource-stakes. Optimize selectivity on whichever is binding based on your life stage.
You talk about young vs. old, but what about in between?
Most people reading this are probably somewhere in between young and old, and the strategy in between becomes a bit cloudy and context-dependent. What we do know is that in between these two stages, there is a long zone where the cost structures between life-stakes and resource-stakes decouple. You just have to identify which variable is binding for each specific bet rather than relying on the specific stage to tell you.
What does binding actually mean?
"Binding" is the variable where the cost of getting the bet wrong is highest. This is also where the selectivity rule should apply.
Younger: life-stakes bind. Even when a bet costs no money, the wrong choice can cost a decade of trajectory. Run the math on life-stakes and ignore resource-fraction.
Older: resource-stakes bind. Trajectory is mostly set, so the cost of any single bet shows up in what it consumes (capital, time, attention) rather than in where it sends you. Run the math on resource-stakes and ignore trajectory.
Re-classify constantly
Bets migrate.
A casual relationship at month 24 has higher life-stakes than at month 2, even if nothing dramatic happened. A job has higher exit costs in year three than in month three. A side project you said would be a few hours a week can quietly become the thing consuming half your attention.
This framework only works if you keep classifying your active bets.
Every quarter, list all the bets you are making. Then mark current life-stakes and resource-stakes for each. Finally, compare it to where you placed them at the start.
If you notice a discrepancy between your current classification and your original one, you're now playing a different game than the one you signed up for. Either renegotiate the bet (down or up), or start treating it with the seriousness its current size demands.
Historically, the bets that ruin people are rarely the ones they sized correctly and lost. They're the ones that grew when no one was watching.
Examples of small and big bets to get you started
Small bets:
- Set up an automated outreach pipeline to interesting people you want to talk to, then talk to each person that accepts
- Start a new project with a friend with an allotted time frame
- Read a new book
- Talk to the person next to you in line
Big bets:
- Leaving your current occupation to start something new
- Big financial investment in a company/stock
- Choosing where to live
- Choosing your occupation
- Choosing your spouse
The last three are the most important and non-obvious big bets with high life-stakes that people tend to overlook.
Big and small bets I have taken so far
Big bets: Sacrificed the remaining two years of my high school to move across the country to SF to build my company at 16.
Small bets: Starting small projects (like this one), sending cold DMs, and coffee chats with new interesting people.
In fact, if you have read this far (and not just skimmed over), you seem like the type of person that I would absolutely love to chat with. Feel free to schedule a call here: cal.com/davidmao/bets
If you are only seeing this because you jumped to the end, deeply read this full essay again to morally earn your spot :)