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Lesson #1: Plan for the Worst to Reduce the Risk of Risk
Lesson #1: Plan for the Worst to Reduce the Risk of Risk
Entrepreneurs, by definition, are risk-takers, people willing to strike out on their own in order to seize an opportunity and make a profit. But, for Li Ka-shing, the richest man of Chinese descent, risk should not be a part of the equation. Li is a self-proclaimed risk-averse entrepreneur and goes to any and all lengths to reduce the risks inherent in his actions. It was in planning for the worst case scenario and learning to expect the unexpected that Li managed to succeed where others before him had not.
Li’s risk-averse nature and the value he places on a dollar extend back into his childhood. When Li was growing up, he knew nothing of the billionaire lifestyle and comforts that he does today. “Despite my achievements, I can still remember poverty,” he says. “I told my children and grandchildren that ‘The fruit that you eat will never taste as beautiful as the fruit that I ate during the turmoil of war. You will never cherish it as much as I do.’” Li grew up in a household that struggled to make ends meet, particularly after the death of his father.
It was during the three year Japanese occupation of Hong Kong that Li began working to support his family. Because his father needed expensive treatment for his tuberculosis, Li sent home 90 percent of his salary during that time. “I am very prudent financially because of those hard times I went through,” he says. “I spent nothing. I had a haircut every three months. I shaved my head like a monk.” Li even refrained from things like seeing a movie, saying, “I needed to save every penny…I needed to be strong, and needed to find some way to secure a future.”
It might have been during his childhood that he learned the value and importance of a dollar, but it was a lesson Li would keep with him for the rest of his life. When he first founded his company, Li had little startup capital and was thus forced to be very careful with his money. “That’s why I am always conservative,” he says. “I never forget to maintain stability while advancing, and I never forget to advance while maintaining stability.”
In contrast to many of his peers, Li’s willingness to take chances with his money did not increase in proportion to his wealth. To this day, he has never taken on any personal debt. He is also extremely proud of his company’s financial record. Throughout the past fifty years, Hong Kong, and the rest of the world along with it have experienced numerous changes, many of which adversely affected Li’s interests. “But how many times have you heard that Cheung Kong’s finances were in trouble over the last fifty years?” he asks. “Never; the reason is, we are always prepared for the worst. That is my policy.”
When Cheung Kong went public in 1972, it had almost no debt. Even where it did have to borrow from a bank, Li notes it would have alternative arrangements, “such as buying government bonds equivalent to the bank loan amount, to ensure that we can readily cash out at anytime.” That is just one example of the extent to which Li will go to minimize his financial risk. Even where he is invited to be a partner in a venture, he will only take a 15-20 per cent minority stake in the project.
Li wears a $50 Seiko watch – which is always set twenty minutes ahead – drives a modest car, and has lived in the same house for over twenty years. His personal no-frills, prudent lifestyle is reflective of what Li calls his “principal policy”: never take financial risk.
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Entrepreneurs, by definition, are risk-takers, people willing to strike out on their own in order to seize an opportunity and make a profit. But, for Li Ka-shing, the richest man of Chinese descent, risk should not ...
