Seek Asymmetric Opportunities Where The Upside Is Greater Than The Downside

Life is made up of a series of small bets. And if you want to build wealth, you want those small bets to have more upside than downside - to be asymmetric towards the upside.

You want to seek out and bet on asymmetric opportunities.

What’s An Asymmetric Opportunity?

An asymmetric opportunity is simply one in which the upside is much greater than the downside.

I first learned the concept from investor Mohnish Pabrai in his book, The Dhandho Investor: The Low-Risk Value Method to High Returns. Pabrai explains the idea of Dhando as “heads I win, tails I don’t lose much.”

That’s the idea of an asymmetric opportunity. The possible return is many times greater than what you can lose.

Nassim Nicholas Taleb has a similar definition for what he calls “Fundamental Asymmetry.” Here’s the definition from his book, Antifragile: Things That Gain from Disorder:

Fundamental Asymmetry (also Seneca’s Asymmetry): When someone has more upside than downside in a certain situation, he is antifragile and tends to gain from (a) volatility, (b) randomness, (c) errors, (d) uncertainty, (e) stressors, (f) time. And the reverse.

When you have more upside than downside, you LIKE chaos and randomness because you are in a position to benefit from random events.

Examples of Asymmetric Opportunities

The Stock market

The stock market is one giant asymmetric opportunity. Stocks are the only asset class that has unlimited upside potential. The most you can lose is your initial investment (limited downside), while the upside is unlimited. This realization is what began my love affair with investing.

What are some other asymmetric opportunities? Naval Ravikant, founder and CEO of the startup funding site, AngelList.com, gives us a few more:

In all these cases, the upside potential is far greater than the downside risk.

Cocktail parties

What’s the worse thing that could happen at a cocktail party? You have a boring conversation. You sip a bad cocktail. You eat some bad hors d’oeuvres.

What about the upside? Well, you could meet your future spouse, future business partner, future best friend. Or hear about a job opportunity you are perfect for, have a conversation that sparks your next business idea, find funding for your startup, etc.

All sorts of positive outcomes are possible in exchange for 2-hours of your time.

This also goes for living in a big city. There’s a ton of upside to be had, if you’re positioned correctly, to gain from the disorder, chaos, and randomness of working and living around millions of other people. You have a better chance of catching a lucky career break here than living on an isolated farm in the middle of Nebraska.

Creating Content

What about creating a book, podcast, or video? These are scalable products, meaning you only have to create them once, and they can be consumed an infinite number of times without any extra effort from you.

The worst-case scenario is no one consumes it. So what? You probably had fun creating it in the first place. The best-case scenario is that it goes viral, catapulting you into opportunities you would have never had beforehand.

Bars & Dates

I met my wife at a bar in Los Angeles. I don’t generally like going to bars, but when you’re searching for a romantic connection, it’s a decent (but not great), time-tested place to start. It worked out for me. The upside is greater than the downside, assuming you can avoid a nasty hangover.

Websites

This website is a good example of an asymmetric opportunity. It’s as much for me as it is for you, so the worst-case scenario is that I’ve built myself a database of ideas I can continuously come back to as I try and build wealth. Anything above and beyond that is just (lactose-free) cream in my coffee.

Pursue More Asymmetric Opportunities

The more swings you can take, the better your chances are that one of these opportunities pays out 10 to 1, or 100 to 1, or 1000 to 1. That’s what an asymmetric opportunity is. One in which the upside is far greater than the downside.

Learn to spot them, and you won’t have to go looking for wealth - it will find you.