Assessing the Risk of Trump

Posted September 18th, 2016 @ 4:23pm
in #Trump #Clinton

For over a year now I have been blogging about Trump’s talent for persuasion, and that gives people the impression that I prefer him as my president. That is not the case. I’ll tell you why at the end of this post.

The best choice for president depends on the types of challenges ahead. And the future has a habit of surprising us. We have no way to predict whether Clinton or Trump would end up being the right match for an unpredictable future.

That said, let’s talk about assessing the risk – to the country – of Trump versus Clinton. My observation of their histories and their personalities suggests that Trump offers America an entrepreneur’s profile of risk, whereas Clinton would be more like investing in a CD at your bank. Which is better? The answer for you probably depends on how old you are, how selfish you are, and how much money you have.

If things are going well for you and your family, you probably don’t want to rock the boat. In that case, Clinton is a good choice for you. But if you are young, or things are not working out well for you and your family, it would be rational to accept higher risk with the hope of getting a bigger/faster improvement.

But how big is the Trump risk to the economy and the country in general? Let’s talk about how Trump has managed risk in the past. That’s the best way to predict how he will do it in the future.

Diversification: Rule #1 for an investment portfolio is diversification. Trump probably wasn’t sufficiently diversified early in his real estate career, but now he has his name on about 500 entities and he has succeeded across multiple fields. He understands diversification. That’s good.

A-B Testing: One of the best ways to manage risk is to try things on a small scale and only double-down if the test is a success. We see Trump trying out different Linguistic Kill Shots to see what sticks, changing campaign staff as needed, and employing different campaign strategies depending on the situation. We observe him being decisive when things don’t work (firing people) and we watch him pivot quickly based on what he learns from testing. That suggests a “systems” type of mind, as opposed to a “goal” mentality. You can read more about that distinction in my book, which you might enjoy because it has pages. The summary is that systems-thinkers manage risk better.

Licensing: A big part of Trump’s business involves licensing his name. I know a lot about licensing because I have done if for years with Dilbert. Licensing is a great way to manage risk because I get paid in advance even if the product that Dilbert’s image is licensed to adorn does not work out. Trump does the same. He gets paid even if the project with his name on it fails. That’s good risk management.

Likewise, Trump almost certainly negotiates for a lump sum advance payment from publishers for his books. Trump gets paid even if the publisher loses money. That’s good risk management.

Likewise also, The Apprentice probably paid Trump a guaranteed minimum no matter the ratings. And if the show had failed, Trump would not have any personal investment in it. He only had upside potential.

Two Ways to Win: We often see Trump choose strategies that have two ways to win and no way to lose. That’s the best risk management of all. For example, when Trump warned that Iran should release American prisoners before he gets elected, he created two ways to win and no way to lose. If the prisoners were released (and they were), Trump could claim his threat was effective. (He did.) If Iran kept the prisoners, Trump could say the United States needs a bad-ass President like him to deal with Iran. 

Bankruptcies: When the general public hears that Trump had several bankruptcies (out of hundreds of projects) they think that means he did something wrong. Business people see a different picture. They see a diversified portfolio of projects that are wisely siloed into their own corporate entities so some can fail without taking the others with them. That’s good risk management because one would naturally expect several failures out of hundreds of projects.

Marriages: Trump is married to his third wife and still has good relationships with his exes. Apparently Trump had good prenups, and good lawyers. He managed the risk of divorce better than 90% of the people I know.

Alcohol and Drugs: Trump has never had a drink of alcohol or an illegal drug, because of the risk. If you have ever consumed alcohol or taken illegal drugs, you have a far higher tolerance for risk than Trump. He removed those risks from his life. And those are some big risks.

Seeing the Future: One way to reduce risk is to predict the future better than those around you. We know that Trump went all-in on his run for president this time, but in prior election years he dropped out early. Apparently he made the right decision this time because he could see himself making it all the way.

We have also witnessed Trump using unorthodox campaign strategies that almost everyone else in the world thought would fail. But apparently Trump predicted the future better than the pundits. His methods have worked.

Trump hasn’t predicted the future correctly every time. As noted, several of his projects did not work out. But evidently he expected there could be some losers among his projects because he set them up as separate entities that could fail on their own without dragging down the rest.

Listening to Advice: One of the criticisms we heard about Trump early in the campaign is that he wouldn’t listen to experts. But now we have lots of examples in which he has done exactly that. His entire campaign has transformed in the past six weeks. We watched Trump assess the changing election dynamics, take advice from advisors, adapt his approach, and spike in the polls. 

Trump is also good at firing people. The smartest person I know told me that the most important skill of a leader is firing, not hiring. No one is smart enough to hire the right people every time, so firing is the more valuable skill. Trump apparently has that skill. Consider how hard it was to fire his longtime friend Corey Lewandowski, and later Paul Manafort. Trump pulled the trigger both times. And both moves proved to be helpful.

Trump’s Ego: Trump’s showmanship and branding comes off as ego, and narcissism, and that can be scary to the public. You want to know your President is making decisions based on what is good for the country, and not what is good for the President’s ego. But Trump’s appearance on Jimmy Fallon went a long way toward changing perceptions about his ego. Trump let Fallon mess up his famous hair on TV, and it humanized Trump. We watched Trump put his ego aside with no real effort.

We also see Trump doing more outreach to the African-American community, toning down his rhetoric (mostly) and generally doing what the public has been asking him to do. That suggests a candidate who has control of his ego. He listens to the people and gives them what they want. 

In my personal situation, things are going great for me, so that suggests Clinton would be a safer choice in terms of managing my risk – both financially and physically. Change isn’t necessarily good for me. But I’m also at a point in my life where I’m focused on providing some public good before I check out of the computer simulation we call life. So if my American teammates prefer a Trump-like risk – because they think change is needed for their own benefit – I’m okay with that. Pick the president you want and I’ll work with it. I’ll be happy either way.

via Scott Adams’ Blog
Assessing the Risk of Trump