That quote was the sketchiest part of the article for me, because the same math was used to justify the subprime mortgage bubble.
Though PG didn't mention it, from the title it's clear he's alluding to Taleb, who would decidedly not justify the mortgage bubble. The idea is not simply to expose yourself to risk but to make sure you are exposed to large positive outliers while making sure you are not exposed to the negative ones.
As resbear said, when you leverage yourself you are increasing your exposure to both positive and negative fluctuations. The long-term success of such a scheme relies on a) accurately estimating the probability of positive vs negative, and b) being able to take the negative ones without blowing up. Neither of those conditions were fulfilled.
Though PG didn't mention it, from the title it's clear he's alluding to Taleb, who would decidedly not justify the mortgage bubble. The idea is not simply to expose yourself to risk but to make sure you are exposed to large positive outliers while making sure you are not exposed to the negative ones.
As resbear said, when you leverage yourself you are increasing your exposure to both positive and negative fluctuations. The long-term success of such a scheme relies on a) accurately estimating the probability of positive vs negative, and b) being able to take the negative ones without blowing up. Neither of those conditions were fulfilled.