Why did Naval say, 'Once you have leverage, judgment is the most important'?

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Alright, let’s discuss this fascinating point by Naval. This insight truly is the stroke that completes the dragon in his entire philosophy on wealth creation.

To fully grasp this statement, we need to break it down into two parts: What is leverage? and Why does judgment become more crucial?

First, let’s talk about "leverage" in plain language.

Imagine trying to move a massive boulder weighing thousands of pounds by yourself. Possible? Almost impossible. But if you’re given a long enough lever and a fulcrum, a small push from you moves the rock.

In this process:

Your strength represents your personal effort—like working 8 hours a day.
That lever is what Naval calls "leverage."

Naval argues that creating wealth in the modern world solely by "selling your time" isn’t viable because you only have 24 hours in a day and limited energy. You must find your "lever" to amplify the effect of your personal effort.

He primarily identifies three types of leverage:

Labor Leverage: The oldest form. Like becoming a boss and hiring 100 people. One of your decisions is executed by 100 individuals, amplifying your output a hundredfold.
Capital Leverage: Easy to grasp—using money to make money. Investing $1 million generates returns far faster than a salary. Your decisions are magnified by capital.
"Code & Media" Leverage: Naval’s most advocated modern leverage, and the most accessible for ordinary people.
- Code: You write software or an app. Once developed, it can serve thousands, even millions, of people 24/7 with near-zero marginal costs.
- Media: You record a podcast, write an article, or create a video. Once published, it can be viewed or heard repeatedly by countless people.

Notice the common thread? All these forms of leverage allow your decisions and efforts to disproportionately impact more people or things at once, yielding massive returns.

Second, why does "judgment" become paramount once you have leverage?

Alright, so now you’ve found your "lever"—whether it's a team, capital, or an account with 100,000 followers. You’ve acquired the power to amplify your outcomes.

Here comes the critical question: In what direction should you apply this force?

This is where "judgment" takes center stage. Judgment is the ability to make correct decisions among multiple choices, especially regarding long-term, directional matters.

Returning to the rock-levering metaphor:

Scenario A: Good Judgment You judge that moving this giant rock will redirect water to irrigate vast farmland downstream. You apply leverage with a firm push. Result: Your correct decision + leverage’s power = Massive positive outcome (plentiful harvests). You gain enormous returns.
Scenario B: Bad Judgment You misjudge and think pushing the rock off a cliff would be fun. You apply leverage forcefully. Result: Your flawed decision + leverage’s power = Massive negative outcome (rock crushes a village). You’ve caused a catastrophe.

See? Leverage itself is neutral—it’s just an amplifier. Feed it a good decision, and it magnifies success. Feed it a poor decision, and it magnifies failure.

Applying this to business:

Good Judgment: You correctly spot a market trend (e.g., early belief in electric vehicles) and deploy capital/team (leverage). Your rewards are astronomical.
Poor Judgment: You pour all your money and energy into an app nobody wants and hire a big team (leverage). Your losses will escalate alarmingly.

Thus, the core message of Naval’s quote is:

When you only have a small hammer, hitting the wrong spot causes minimal damage. But when operating a giant excavator (leverage), digging in the wrong direction might instantly plunge you into an abyss.

In Summary

We can frame wealth creation as a formula:

Outcome = Judgment × Leverage

In the pre-leverage phase, you rely primarily on selling time and effort—here "diligence" is key.
When you seek and utilize leverage, you accelerate into the highway of wealth creation.
Once you wield leverage, the consequences of every decision are dramatically amplified. At this stage, "what to do" and "what not to do" (judgment) far outweigh "how hard you try" (diligence).

That’s why Naval emphasizes that once you find leverage, your bottleneck is no longer strength—it’s direction. Judgment is the invaluable compass guiding that direction.