When I was younger, learning how to invest from my father, he taught me a simple concept.
My father was explaining the difference between choosing stocks purely for growth and choosing stocks purely for the dividend they pay.
While teaching, he mentioned that when he was younger, he used to focus on growth stocks. But as he got older, he started primarily focusing on stocks that paid high dividends.
The reasoning was simple. When you’re young, you can take risks and still survive the worst case. But as you grow older, stability becomes your best friend.
Learning this, I decided to stuff it in the back of my mind — it was really just simple reasoning.
However, a few weeks back I started reading a book on game theory and strategy and found this concept applied again. Except in a manner that completely changed how I think about it.
The Concept
Imagine you and your friend are playing a game. You have two remaining turns that will decide whether you win or lose.
Just for the purpose of the example, let me put it in numerical terms. If you get 2 more points, you draw with your opponent. If you get 3, you win.
You have two strategies in mind. The first is risky but gets you 2 points; the second is much safer but only gives you 1. What’s your ideal course of action?
You need 3 points, so the best decision is a mix of both — one of each gets you there while taking on the least risk possible.
What you might not have noticed is the order you play them in.
If you take the safe strategy first, then the risky one, and the risky one fails — you can’t recover. You don’t even draw. You lose.
But if you take the risky strategy first and it fails, you still have a second shot at it — you can still draw. That’s the whole concept, in one sentence.
Real Life Examples
I want to show you two cases of this strategy at work. One where it failed, and the other where it succeeded.
Both cases come from World War 2 — a war so large that even a small flaw in decision-making cost an enormous amount of money and blood.
Rewind to 1938, at the edge of the war. Hitler was threatening to take the Sudetenland, a German-speaking region of Czechoslovakia, and the Allies were staring down two choices that look a lot like the ones above.
The first was the riskier option — draw a hard line and restrain Hitler before he became a bigger threat. It felt risky because the men who’d fought the First World War had no appetite to live through a second one.
The second option seemed much safer — hand over the Sudetenland and hope Hitler would be satisfied and stop there.
The Allies chose option two. And we know how that went. Six months later, Hitler took the rest of Czechoslovakia anyway. The safe choice hadn’t even worked — it had just bought him time.
Even Germany’s own generals admitted later that the Wehrmacht wasn’t ready to fight both France and Britain in 1938. Taking the risk then might have meant a contained, ugly crisis — not a six-year war.
Now flip to Midway, 1942. Pearl Harbor had just gutted the US Pacific Fleet, and Japan’s carrier force badly outmatched what was left.
At the moment most commanders would still have been reeling, Admiral Chester W. Nimitz went the other way — an ambush on the Japanese carrier force, built entirely on codes the US had just managed to crack.
It was a gamble, and it worked. Japan had entered the war stronger, but it didn’t have the capacity to rebuild four sunk carriers.
The hardest part about this concept isn’t learning it — it’s applying it. It’s easy to push the harder, riskier move to “later” and play it safe today.
My father never used any of these words but he understood its impact. One that decided the fate of millions in the Second World War, and could decide your life as well.