Asymmetric Investment: Ingenious Money Making Method

Asymmetric Investment: Ingenious Money Making Method

March 5, 2021 0 By Patrick Fletcher

Never heard of asymmetric investment? Here is your opportunity to learn the strategy used by some of the biggest names in investment today!

Overview of Asymmetric Investment


Asymmetric investment is when the outcome of a trade is likely to be more than the risk taken or loss. For this strategy to work, the upside potential should be greater than the downside risk, or at the very least, it should be a limited loss.

An investment portfolio that is asymmetrical has less potential of losing money on your investment. And that loss should be limited, ensuring that outcome remains is not a continuous loss.

This may sound like common sense investing, but it is a bit more complicated than that. You likely already consider the risks before investing in anything, which you definitely should. But how often do you examine an investment’s potential growth versus its downside?

In other words, what separates asymmetric investing from standard investing practices is the underlying calculation. Yes, a stock can go 100%  completely down, but what about its upside? That’s unlimited.

The Asymmetry Chart

One of the easiest ways to understand asymmetric investment is to visualize it. The Asymmetry Chart, a visual representation of asymmetric investing, gives people a better understanding of this strategy.

The asymmetry chart depicts both asymmetric and symmetric investing, and the risks and rewards associated with each.

When you go with symmetric investing, you accept that the chance to lose money is the same as the chance to make money off an investment.

On the other hand, the asymmetry chart shows how advantageous it can be to use an asymmetric strategy. Remember, there are risks involved in asymmetric investing, but the key here is that the risks are limited or capped to a certain extent.

Along with keeping risks to a minimum, your investment using asymmetry has unlimited potential. The idea is to always keep your profits higher than your losses.

Explain About Asymmetric investing methods


Before you contemplate putting this strategy into action, you should have a better understanding of asymmetric investing methods. This will help prevent you from making symmetric bets when you want to make asymmetrical investments.

Let’s say you are prepared to buy a stock with a 200% upside and you are fine with cutting your losses at 50% of your investment. That would be an asymmetrical bet because you stand to more to gain than any potential loss.

Your investment really depends on limiting the loss. So being ok with walking away at 50% loss for example means you are not riding it down to 100% loss.

How does it differ from traditional methods

Again, this may sound like common sense or at least sounds like something you are already familiar with putting into practice. However, it is unlikely that you are truly making asymmetrical bets.

Take for example an investment of $100 in the hopes of making at least $100 back on a “sure thing”. This kind of investment means you put in exactly what you expect back, but there’s a chance it comes back as $0.

An asymmetric bet would be putting in $20 in the hopes of making $100, but being ok with losing, let’s say half of the investment ($10). In this scenario, your asymmetric bets limit your risk while giving you greater potential to gain.

If you find yourself in the first scenario often, it’s time to switch your investment strategy from symmetric to asymmetric.

Why Are Big Investors like Buffet, Lynch Interested in Asymmetric Investments?


So why are some of the biggest, well-known names in investing using the asymmetric strategy? Well, because it has helped them get rich, of course!

But beyond just making money, big-time investors love this strategy because they love to limit their risks. It’s much easier to remain wealthy, and put that wealth into use if you are constantly mitigating risks while maximizing your profits.

This also leads to big-timers looking in every corner of the investing market for hidden gems. When they can identify an undervalued stock, they might pour in some money in hopes that it truly is a hidden gem.

If their bet is correct, they stand to trounce the market, and if they eat a loss on it, it’s usually a small, limited one. Don’t for a second think that these big dogs in investment don’t’ make mistakes once in a while.

The difference is, when they take a risk, they make sure it is a limited one, while their chance of making more than they put in is very high.

Investment opportunities in 2021

Now it’s time to put this strategy into action, so where is a great investment opportunity for you in 2021?

Energy and natural resources are often volatile commodities, which usually means it’s something to avoid, but not in this case. If you can harness the volatility of any market by using an asymmetric strategy, you stand to gain a lot.

Another route you can take is investing in biotech companies, specifically a small-cap biotech company. While large biotech companies often offer a “safe bet” opportunity, what you want is the asymmetrical bet a small-cap company offers.

If that small biotech company posses a new, promising technology targeted toward a growing medical need, then you stand to gain a lot from your investment.

Of course, there are still risks involved with a small-cap company. Always do your research before making an investment, and make sure those risks are limited.

The key is to first identify an asymmetric investment opportunity using the above information. Then you’ll want to buy assets after busts but before booms, not the other way around.

How Dear Retail Investors Can Start Making Asymmetrical Bets


Are you interested in using the same investment strategies as top investors, but don’t know where to start? Discover all the ins and outs of small-cap investing with Dear Retail. We are investors just like you, whose aim is to educate, advocate, and enrich you. Click here to learn more about becoming a better investor!