Remember the TV show Deal or No Deal?
It’s a show where the player has a suitcase that contains an amount of money. They choose cases to eliminate them in the hope to end up with the highest amount which is $200k at the end. Along the way contestants can choose to take the bank deal offered or take a risk and continue to play. They may end up with $200k or with a much smaller sum.
I used to love the show and I’m always yelling ‘take the deal!’ as I vigorously rub the tips of my fingers together (this may sound weird if you haven’t seen the show). My pleads directed at the TV get louder as the odds get slimmer. I realised from playing this game even though I’m a property developer, I don’t like to take too much of a risk if it means losing money.
This threw me a bit as I always thought of myself as a risk taker. Then I worked out that I do like risk, but only calculated risk.
Calculated risk is defined as: “A risk associated with a certain course of action which has been given full consideration prior to making the decision to pursue that action. This is usually done when the potential gain is greater than any potential harm that might occur.” investorwords.com
The bit I like in this definition is ‘...when the potential gain is greater than any potential harm...’ ah, so that’s why I like risk, it’s what I do everyday; assess the potential gains in a property deal. Also my job as property development project manager is to ‘give full consideration’ to a development and inform our clients before they ‘pursue action’.
In a way, the show was a bit like property developing. If you hit the jackpot, there is good money to be made. Making the decision on what case to chose could be somewhat like choosing a development site.
If you chose the wrong site, you can uncover a $50,000 problem and eliminate a lot of your profit. If you chose the right site, you may create $200,000.
Property developing is about spotting potential and taking calculated risks. That’s why I love it.