Risk & Optionality

I. Lies

I have read the same article about how our “brightest minds” are wasting their talent doing finance, consulting, law, big tech, or some other industry at least a dozen times over the past five years. Each time, the urgency is more emphatic: “The planet is hotter, the strongmen are more confident, and the threat of runaway AI looms larger…[which] demand exceptional minds now.”¹

I want to make a slightly different observation. I have no problem with our “brightest minds” wanting to work and make (a lot of) money in finance, consulting, law, tech, etc. Many will have successful and fulfilling careers in those fields. Some people light up talking about debt covenants and leverage multiples.² And, in any case, there are many reasons to want a high-paying job: maybe you want to live in a London or a San Francisco or a New York, maybe you want to have a family, maybe you want to provide for your parents, and so on. Great. But what about the (very small group of) people who have the capacity and desire to create something great and are being absorbed into existing institutions?³

The first question: why are you interested in working X industry? Our degree of interest working in X industry is endogenous to how much it pays—there probably isn’t a clean separation—but is there a durable, independent desire to do the work? We trade off passion/interest for income all the time, but the exchange rate is probably sublinear: we overweight the value of money vis-à-vis interest, and end up unhappy.

In response, I’ve been told that no trade off exists. Here’s an example from a friend who’s going to work for a boutique investment bank. I asked if she’d still do her job for the prestige, pay, and exit opportunities of a high school teacher. She answered that she would because she “finds M&A very interesting.” I don’t doubt that M&A can be very interesting, but this seems like a stretch.⁴ And if you say: well, I don’t really care about IB, it’s just a stepping stone to what I actually want to do, which is X. But why X? Better pay? More prestige? Something else? Do you trust yourself to leave when it’s time to do X? “Life is suffering. So figure out something worth suffering for.”⁵

The second question: are you exhausting your capacity to be great, or are you being pushed to feel that way? I think the recruiting process for the “Bermuda Triangle of Talent” has evolved to be extraordinarily good at making you feel like you’ve exhausted the entire extent of your living ambition by working at their firm. Firms love to mention their internship acceptance rate, where their employees went to school, the awards they’ve won, and so on, which simulates a sense of exclusivity that, once you’re inside, probably dissolves into something pretty dull. Maybe you’ll find the work is intense without being challenging. Maybe you’ll find you aren’t learning all that much.

Recently, I met with the founder of mega fund. A few ideas from our conversation that I want to repeat here:

Risk is like a roommate. If you keep an eye on him all day, nothing bad will happen, but you will also be stuck inside watching him all day. If you are out living your life and never come back to check on him, he might burn the place down. You need to decide what level of oversight you want over Risk; Your career is the most important investment decision you will make—think carefully about it; Look to your peers at Stanford—what are you better at than all of them? You need to figure out what you are exceptional at and love doing; You need to get the major trend right; You need to get into the right neighbourhood—if it’s AI, maybe you should go work for OpenAI or Anthropic, because that is where the few thousand people in the world who can see how AI is developing.

He’s right. The career you pursue should flow from what you think you have the potential to be the best in the world at and what you love doing. Instead, I usually see the career flow from what is thought to be the most prestigious. Given that your career is the single largest allocation of time and energy you will make, we probably spend less time thinking about it than we should. I am certainly a victim of not dedicating enough serious thought. Part of this is manufactured as a consequence of extremely early recruiting cycles that funnel you into preparing and applying because of FOMO and a desire to easily de-risk your career path. It’s uncomfortable to sit with uncertainity. By the time you’ve just settled into college and finished your freshman year, you must immediately make the decision to recruit for finance or not. Not much time for serious thinking.⁶ Second, the assumption is that the conventional path for twenty-somethings is the safe one. No one will tell you you’re making a mistake working for a Goldman or a McKinsey. But it’s worth pointing out that staying inside all day to watch your roommate is its own kind of cost.

I had a longer conversation with the founder of another large investment firm, who gave me two important observations. First:

Many of his college friends began a career that they were not honest with themselves about why they were pursuing it. Then, after a few years, they weren’t honest with themselves about when they would leave and do what they really wanted. Now, nearing the tail end of their careers, they are financially successful but not particularly happy.

Second observation:

Many of his friends started out in a job they didn’t care about because they wanted optionality. But they usually didn’t end up exercising that optionality; It might feel scary to take risk as a young person, but it becomes incrementally harder to take risk as you get older.

We are not infinite beings, so we cannot have infinite shots on the goal. Taking a punt becomes harder as you form more permanent relationships, and have more obligations. Simultaneously, you have increasing opportunity costs of leaving and more generous incentive packages that encourage you to stay.

In the past five years, more and more students seem to be converging towards conventional paths. The trend seems to be striking enough that, in a conversation with the Provost, she asked me whether the admissions process needs to change because we’re selecting for students that would be better served at a different school.

Maybe. The world has changed. Students (and their parents) are responding to different incentives: college is more expensive, the world is more competitive, and the future is more uncertain. So, students are already solving for the job, or really the lifestyle and financial security, they want in high school by reward-hacking their way into a good college. Even if we changed the admission criteria to select for more risk-on types, students would change their behaviour to better fit the updated criteria, and probably recruit for the same industries regardless. This multipolar trap is something universities probably cannot correct from the admissions process. I think the trend is also partially culturally driven. In high school, or earlier, students absorb a highly legible and narrow conception of success: lionised, high-paying careers in finance, law, consulting, and tech, reinforced by media like American Psycho, The Wolf of Wall Street, Suits, “I’m looking for a man in finance”, and social media writ large. It’s unsurprising they reverse-engineer the path to get there. University is trending towards becoming a very expensive credential factory.⁷

II. Me

There is a passage from Siddhartha that I find myself thinking about more and more. Am I like a falling leaf, that “drifts and turns in the air, flutters, and falls to the ground,” a leaf that is blown about by whichever is strongest: prestige, salary, peer expectations, FOMO, etc.? Instead, we should become stars, because stars “travel one defined path: no wind reaches them, they have within themselves a guide and a path.” The opportunity cost of defaulting to a conventional path feels uniquely high right now. Staying inside to watch the roommate might be the most expensive decision I could make. Why be a falling leaf when you can be a star?