Korva is a scroll of the internet’s best ideas.
Protect the downside first
Life at Progressive
At Progressive, Todd Combs was responsible for about 40 percent of the company's premium as what would now be called a data scientist. He worked hand in hand with general managers from Harvard, Chicago, and Kellogg as the company grew into a Fortune 500 firm. In the late 1990s he was also investing on the side, from mutual fund prospectuses that arrived by mail.
Why he wanted to leave
He loved Progressive and knew he could do well there, but he wanted to see whether he could be good at investing and whether he liked it. The two usually go together, since it is hard to love something you are not good at. Columbia had the best investing program, so he talked his wife April into moving to New York.
The open ticket
Before going, he told Progressive the plan and got an open ticket to come back. He would have returned as a product manager, having missed two years, which was not the end of the world. Protect the downside, then take a shot at the upside.
Why does a capped downside make risk-taking easier?
Finance has a name for this shape: an option is the right, but not the obligation, to do something, and its buyer can lose no more than its price. Stewart Myers of MIT coined the term real options in 1977 to describe the same shape in business decisions. A job with a guaranteed way back works like one, because the cost of trying is limited while the gain is not. Real options theory is now taught in corporate finance courses.
How did Progressive grow into a giant insurer?
Progressive was founded in Cleveland, Ohio, in 1937. It built its business in nonstandard auto insurance, covering drivers other insurers declined or priced high. The company relied heavily on data to price risk by detailed driver characteristics. In the mid-1990s it began offering online quotes, early among large insurers.
More from Joys of Compounding
