You may not have heard of asymmetric investing before, but it’s at the heart of almost every successful investment strategy.
Understanding it will put you ahead of 99.9% of other investors. It turns investing – from guesswork into putting the odds of success in your favor.
So what exactly is it?
Asymmetric means the risks versus rewards are imbalanced – in other words the probability of making money significantly outweighs the probability of losing money.
For example, Investment A below illustrates traditional investing in stocks where the profit or loss are equally balanced. Whereas Investment B uses the principles of Asymmetric Investing, where the probability of profit greatly exceeds the probability of loss.
Asymmetric Investing is achieved by identifying and selecting opportunities that meet criteria like the following:
- Fewer scenarios where the investment has the potential to lose money and – if it does – the amount lost is contained.
- More scenarios where the investment has the potential to gain money and – when it does – the amount gained is significant.
This contrasts dramatically with traditional investing where returns and risks are more directly correlated.