Asymmetric investments

This is one of my favorite concepts. As you will understand asymmetry is heck of an interesting topic the more you deep dive into it you will see how it relates to many areas.

As you know i tend to relate everything to investments or maybe investments to everything? anyways…

First understanding asymmetry

As per the dictionary definition comes the following:

Asymmetry is the appearance that something has when its two sides or halves are different in shape, size, or style.

But why is this concept paramount in investing and to be honest in most areas of our life.

Besides humans enjoying symmetry, yes i know it sounds weird.

But there have been some studies that show how humans prefer symmetrical faces as they thought of them as more “attractive”

Maybe it has to do with symmetry bringing “order” to a chaotic universe thus our brains are wired to lean towards it or maybe not. I leave it to you to decide.

When it comes to investing, we want to have asymmetry in our investments.

Meaning if we have the possibility to lose “1x” amount on our investment. We want to the probability to make AT LEAST “2x”.

Venture Capital

One of the best industries to study and understand asymmetry is Venture Capital.

Venture Capital consists of investing in start-ups, which are very early-stage companies generally tech companies. It is considered a very high-risk investment.

This is because as those companies are very new they have inherent risks that other more mature proven companies don’t.

Disruptive innovation from competitors, pricing wars, inexperienced management, founders just wanting to raise money for a bigger salary rather than focusing on the real business, just to name a few.

So, if you guessed about 90% of the investments made in those companies fail, you guessed right! Meaning most venture capital funds lose $90,000 for every $100,000 they invest. That sucks!

So if it seems it is such a bad investment with that high of a failure rate, why do they do it?

Asymmetric returns.

Venture funds are not your typical mutual fund or equity fund aiming for an 8-12% returns per year.

They are aiming for 100x, 400x, even 4000x in some cases. Angel Investor Naval Ravikant mentioned his early-stage investment on Uber made a whooping 4000x.

To clarify that is not a 4000% return as that would mean “40x”

It is a “4000x”

So even after losing -$90,000 the remaining $10,000 would become $40 Million.

That is the beauty of asymmetry.

The best get it

Legendary Investors like Ray Dalio, Paul Tudor Jones, Kyle Bass are all very aware of asymmetry

They know investing is not a game where they can be right 100% of the time. But if the times they are right can outperform when they´re wrong thats enough

For example, Tony Robbins mentioned in one of his books when he spoke with Paul Tudor Jones, he had the 5-to-1 rule. Meaning for every $1 he risk he aims to gain $5

The Barbell Strategy

If you thought that was all there was to asymmetric investming, you are in for a surprise.

I personally encountered the “Barbell Strategy” from Nassim Taleb.

I really enjoy his books a great deal. “The Black swan” – “Antifragile”- “Skin in the game” are my favorites

He mostly talks about asymmetry, volatility, uncertainty, related to investments as he is a former trader but his examples shows how asymmetry is also related to many things in life which makes the reading even more fun

The strategy when we talk about investments consists of having 90% on one extreme of the barbell with the majority of safe investments, like Cash, treasuries, gold

The other extreme of the barbell would consist of having 10% high risk high reward investments like early-stage companies, financial derivatives like options, cryptocurrency

So instead of having some stocks like Walmart and Apple. You go for Cash and Bitcoin for example.

That is allowing you to create asymmetry on your portfolio not just on specific investments.

Find me the asymmetry

If you understand the concept of asymmetry in investing the following question appears evident

Which are some asymmetric investments? Where to find them?

Well i tend to think of that question a lot

I developed my personal investment portfolio always with that question in mind and continue to ponder about it constantly in order to identify new opportunities

Allowed me to early invest in companies like Amazon, Tesla and Bitcoin

You don´t need to invest in start-ups or become and angel investor to get the benefit of asymmetric investing

There are lots of opportunity in the stock market, in real estate, in art, in crypto, etc. Basically anything out there could have an asymmetric risk / reward profile

It is also a common practice among investors to see what other are the others investing in?

For example:

• Bill Miller, had investments in both Amazon and Bitcoin at very early stages

• Ron Baron also billionaire investor, had invested in Tesla very early on

• Warren Buffet though not very early for the company growth but he poured over 40% of his 200B+ Berkshire AUM on Apple

This is not to say that copying without your proper due dilligence is the way to go. It just serves to point that great investors normally have great investments lined up on their portfolios.

Sometimes those can be very great asymmetric investment idea generators.

What is on my radar now

I have long thought as bitcoin being one of the best asymmetric investment of our time.

Even at current price of $37,000 usd. It could easily be a 1:20x risk/reward

Now, is that the most asymmetric investment currently? Is that the best investment with the best risk/reward profile? Probably, probably not.

Remember is not just about thinking for potential gains but for potential loss what makes the whole risk/reward equation.

I also think other projects on the crypto space could have higher returns, but nothing comes close to the risk/reward profile of bitcoin in my opinion


This are some other interesting investments i have been pondering about: 


Fintech: Through payment networks, Square, Paypal. New technologies that could disrupt traditional credi card companies. Think Visa vs Solana.
 

Technologies in Renewable Energy: Through electric vehicles, charging networks, Solar, energy storage.

Healthcare: Through genome editing, new drugs like Ozempic, tele healthcare, etc.

Even some leveraged bitcoin strategies could represent a higher asymmetric investment, but with a higher risk profile for sure.

Think of bitcoin a proxy that could have a higher Beta than bitcoin 4-5x, like for example the bitcoin mining stocks

Those are some of the things i am keeping my eye on.

Remember with any investment, one of the greatest advantages of the elite investor is patience, is not market timing, is not leverage, is not more information.

It is just sitting on your hands and waiting.

If you think of any great asymmetric investment, please let me know 😉

Zifush