Choose the narrow path

There are companies with a narrow range of potential outcomes, and those with a wide range of outcomes. If your goal is to protect wealth rather than build it, you should prefer companies that have a narrow path ahead of them.

The following figures demonstrate two extreme examples. One is a lower-risk company—mature, with a nice defensible moat around its business, and a predictable path to sustained profitability. It likely won’t make you rich, but it won’t ruin you, either. You’ll notice that the range of future outcomes is quite narrow.

The second figure is a high-risk company. It could make you rich. Or it could be a zero. The range is huge, and the further out you go, the less confidence there is in the business.

In life, the entrepreneur chooses the wide path. There is infinite possibility. But also no safety net. We would call this a life well lived, and a path that allows your unique skills to flourish.

Most people who build significant wealth do it via the wide path.

But when you’re investing to protect your wealth, the wide path can lead to ruin.

Protecting wealth requires you to choose the narrow path.

There is no need to chase the upside at this point. Protect your downside. Narrow your range of outcomes. Strive for predictability in the cash flows of the businesses you own. This will make it much easier for you to strengthen your conviction in your strategy—because the downside of the narrow path is higher than the downside of the wide path.

In order to protect your wealth, you must secure the floor of your net worth—don’t worry about the ceiling. That will take care of itself, as long as you’re invested in productive assets that can grow cash flows over time.

By managing the downside and protecting the floor, you won’t be as likely to panic, and you won’t be as likely to be shaken from your long-term strategy at the wrong time.

Invest, don’t speculate.

Choose the narrow path.