Risk means more things can happen than will happen - Elroy Dimson
The 4 following quotes are from the book The Most Important Thing Illuminated by Howard Marks.
"Rather than volatility. I think people decline to make investments primarily because they're worried about a loss of capital or an unacceptably low return. To me, "I need more upside potential because I'm afraid I could lose money," makes an awful lot more sense than "I need more upside potential because I'm afraid the price may fluctuate." No I'm sure "risk" is - first and foremost- the likelihood of losing money."
"Theory says high return is associated with high risk because the former exists to compensate for the latter. But pragmatic value investors feel just the opposite. They believe that high return and low risk can be achieved simultaneously by buying things for less than they're worth. In the same way, overpaying implies both low return and high risk."
"There's a big difference between probability and outcome. Probable things fail to happen - and improbable things happen - all the time."
"Like opportunities to make money, the degree of risk present in a market derives from the behavior of the participants, not from securities, strategies or institutions. Regardless of what's designed into market structures, risk will only be low if investors behave prudently...Risk cannot be eliminated; it just gets transferred and spread."
How then does risk relate to optionality? Like it states above, risk would be greatest if one were to overpay for the option in question. Just as all stocks are not created equal, some quality stocks are simply overpriced to the point were there is more risk to the downside than to the upside, and some beaten down stocks are actually a bargain that carry much less risk and much more upside potential. You must choose your options carefully and view each with a sort of second level thinking. For example, exercise is a convex option, yet it is possible that you can pay too much for it - especially over time.
Imagine going to the gym and doing 1 set of bench press vs doing 10 sets. Quick question, is doing 10 sets going to make you 10 times stronger? No, of course not. In fact the most valuable set, i.e. the cheapest, is the first set. You are much better off going to the gym and doing 10 sets of completely different exercises and/or muscle groups to gain the most amount of fitness for time & energy spent. This is the essence of optionality. Yet time after time I see hulking behemoths in the gym doing the same set of arms or legs or rows over and over again - they look like the least fit humans on earth. If there was ever a contest for who could do the most heavy rows with a cable then these guys would be set but otherwise they are forming and developing completely useless muscles and motions outside of their narrow domain.
So this brings us back to the point that to get the maximum benefit from a given convex option one must pay as little as possible, and in order to pay as little as possible one must diversify or be volitant with the convex options at your disposal. Doing the same thing over and over is like slicing one pizza into smaller and smaller pieces - its just better to grow the pizza or switch to a different entree entirely.
"When everyone believes something is risky, their unwillingness to buy usually produces its price to the point where it's not risky at all. Probably negative opinion can make it the least risky thing, since all optimism has been driven out of its price...when everyone believes something embodies no risk, they usually bid it up to the point where it's enormously risky. No risk is feared, and thus no reward for risk bearing- no risk premium- is demanded or provided. That can make the thing that's most esteemed the riskiest. This paradox exists because most investors think quality, as opposed to price, is that determinant of whether something risky."
Therefore purchase convex options as broadly and as cheaply as possible. Use your time and energy wisely. Focus and the process, how to streamline getting to as many options in the smallest amount of time and energy as you can. Court randomness and look for new asymmetric bets you can place on your own future. Be endlessly curious and seek failure the read the tea leaves and find out why you failed. More knowledge equals more options. Seeing the perspectives from other people and viewed from other angles can mean the difference between a good life and a great life. Its all at your finger tips. Get out there and explore with action.