On 31 August 2009 trading starts for the fifth Make a Million competition. Last year, instead of buying actual shares for their competition portfolios, entrants had to buy single stock futures (SSFs) for the first time – a slightly more complicated and riskier game.

Buying an SSF does not mean buying the share; it means buying exposure to the share price movement. Because you don’t have to deposit the full value of the shares you’re interested in, a little money can go a long way – or really burn you if the price moves in the opposite direction than you thought it would!

How does an SSF work? You normally deposit about 15% (called margin deposit) of the amount that the shares would have cost you, but enjoy full exposure to the share movement. For example, if the shares are worth R10 000 when you buy your SSF contract and the share price subsequently increases by 10% (R1 000), your 15% (R1 500) margin deposit will yield a R1 000 profit – a return of 67%. But if the share price falls by 15%, for example, you lose your entire margin deposit – a negative return of 100%. If you need more examples, have look at my previous blog on how an SSF works.

How does buying SSFs differ from building a long-term, traditional share portfolio? With an SSF account:

• You could lose more than your capital when the share price falls quite sharply. (You may want to set up a stop-loss with your position to prevent this from happening.)
• You could leverage your profits, as you need to deposit only a fraction of the value of the underlying shares.
• You are usually less concerned with the business fundamentals of a company, as you could have lost either your margin deposit or your patience long before you see the true value of the company reflected in its share price. SSFs are more suitable to share traders than long-term investors.
• It’s easier to short a share. (Shorting is selling a share that you don’t own with the idea of buying it later at a lower price and making a profit.) If you believe that the share price is going to fall, you can just instruct your broker that the SSF contract is a short position.
• You generally pay lower brokerage.

And how does playing the Make a Million competition differ from holding a normal SSF account with a broker? Well, in exchange for standing a chance to win that million, you need to put up with a few restrictions:

• You can only deposit R10 000 per competition entry, of which R9 000 is used as your margin deposit and the remaining R1 000 acts as an additional buffer which earns interest. Nothing stops you from opening several accounts, though.
• Unlike a normal SSF account, you cannot deposit extra funds into a Make a Million account. When you have lost your margin deposit due to the share price falling, you are out of the game.
• You cannot keep your position open after the last day of the competition. Before the close of trading on 13 November 2009, you need to have only cash and no more share exposure in your Make a Million account. With a normal SSF account you could continue your exposure for as long as you please and just roll the 3-month contract over from one quarter to the next.

SSFs are great instruments for those stock market players who want to gear up their capital seven-fold and don’t mind losing that capital when they make the wrong call.

Always on the fringes, operating outside the ruling capitalist system, stands the Outsider. The Outsider has a negative perception of the type of work and working conditions that society rewards and therefore wants no part of it. She is often artistic or produces work that is appreciated by a very small niche market. At the extreme, she doesn’t really care whether anyone appreciates her talents and will reward them, because it’s her life and she spends every day as she pleases.

No wonder money is not exactly flying into the Outsider’s bank account.

The Outsider is at heart a child rebelling against the reality of a world in which none of us is completely self-sustaining and would always need to exchange our skills and talents for the goods and services of others. She may think that, by being ‘true to herself’, she will escape the stereotypical movie-version midlife crisis of the corporate executive who has spent his entire adult life doing work he despises to build up material wealth and please others. The Outsider does not realise that her midlife questions may eventually look like this: What if I really made an effort to find fulfilling work that also paid well? What would it have been like to be financially successful and secure at my age? Have I been avoiding the real world and its battles? Does my courage as a non-conformist have a shadow, namely the cowardly avoidance of a challenging and competitive professional life?

The Outsider is caught up in a false dilemma, a belief that her work has to be either fully commercialised or completely authentic. Dividing her time optimally between paying clients or commissioned work, and ‘own time’ to play and create is the key to the Outsider’s financial and emotional well-being.

I’ve seen that look in their eyes when people start telling me how they want to quit their jobs and start their own businesses, or tackle a life-long dream, but something is holding them back. It’s the look of frustration mixed with self-doubt and fear. Mostly fear of failure and fear of the unknown.

I haven’t conquered either of the two big fears, but I’m slowly catching on to the idea that failure is just a normal, integral part of life. In fact, repeated failures and eventual successes are the reasons humankind make any progress at all. Like Tom Watson, the president of IBM observed, ‘If you want to increase your success rate, double your failure rate.’ The more comfortable a society is with failure, the faster is its collective learning.

Failure could even make you brighter. According to creativity and learning guru Tony Buzan, learning to learn is the real achievement. Many people won’t try a new challenge until they’ve done all their homework and are 100% sure that they will succeed. But your brain is designed for a more experimental and explorative model. Remember how we all learned to walk, talk, ride a bicycle…? Buzan uses an acronym for the steps your brain has to take on the road to success, TEFCAS:

1. Trial – this is every attempt to achieve a goal (depending on the goal you may need only a few or thousands of these).

2. Event – this is the memorable moment when you miss the ball, go blank in front of your audience or is unable to deliver on a promise to a client.

3. Feedback – When the Event happens, your brain receives information through your five senses and intuition.

4. Check – Your brain will consciously and automatically check how you have performed in relation to your goal.

5. Adjust – You will then make the necessary adjustments for your next trial, always keeping your goal in mind.

6. Success – Reaching your goal after repeating steps 1 to 5 as many times as needed. But watch out, during the learning process your brain usually doesn’t judge your goal. If it is something negative like harming yourself, it will still view reaching that goal as success. Therefore be careful how you formulate your goals.

When Buzan asked people why they practise or repeatedly try something, 99% of the response sounded like this: ‘To get better with every attempt’. But this is an unrealistic expectation and not the way human learning works. Skill or performance does not develop like an up-ward sloping line – even the world’s greatest sport people have days when they just can’t do anything right. Thomas Edison failed 9 000 times before he perfected the light bulb. If you expect to progress all the time, the first Event that looks like regression could make you quit on the spot. Prepare for ups and downs and endless displays of no-progress. Some you win, some you lose.

I recently heard a striking definition of an expert: ‘someone who has already made all the mistakes possible in a particular industry’. Meant as a joke, but there is some truth in the statement. While it’s a great achievement to reach success after only one trial, a few mistakes or even a major failure could equip you better for future projects – and leave you with more stories to tell.

While it makes sense to have your big failures early in life when they’re usually cheaper and you’ve got more recovery time left, failures later in life can also be a blessing in disguise. In his famous Stanford address, Steve Jobs has the following to say about getting fired from Apple 10 years after starting the business from scratch, ‘(It) was the best thing that could have ever happened to me. The heaviness of being successful was replaced by the lightness of being a beginner again, less sure about everything. It freed me to enter one of the most creative periods of my life.’

J.K. Rowling’s recent speech to Harvard graduates echoes that of Jobs. ‘Failure meant a stripping away of the inessential. I stopped pretending to myself that I was anything other than what I was, and began to direct all my energy into finishing the only work that mattered to me. Had I really succeeded at anything else, I might never have found the determination to succeed in the one arena I believed I truly belonged. I was set free, because my greatest fear had already been realised, and I was still alive, and I still had a daughter whom I adored, and I had an old typewriter and a big idea. And so rock bottom became the solid foundation on which I rebuilt my life.’

I don’t have the same glamorous story, but I can identify with Rowling. I had always believed that I could do anything until I collided head-on with Mathematical Statistics 314. I did so poorly in the exam that they wouldn’t even allow me to re-write. As a result, I never qualified as the professional, admired, well-paid actuary which I thought I was on the road of becoming. It was painful and a severe blow to the self-esteem at the time, but it prompted me to start and complete my humanities degree a few years later. I don’t even want to imagine missing out on topics like satire and subversion, post-colonial thought, advertising, editorial practice, eco-criticism, gender studies, African prose, magic realism – an intoxicating journey through the world of ideas.

Yes, sometimes repetitive failure embitters people and that will always be one of life’s great tragedies. But I suspect that a little bit of failure now and then actually turns most people into nicer, more empathetic human beings. Every trial, every leap of faith may not always allow us to touch our goals, but it keeps us in the hero-zero relay called human existence. We’re on track.