Principles for Applying Asymmetric Bets

Using Leverage & Uncertainty To Your Advantage

Perhaps the most significant is that it’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong — Stanley Druckenmiller

I’ve been obsessed with asymmetric bets and looking for them wherever I can find them.

These are bets where you have disproportionate upside relative to downside risks. A simple example is where you pay $100 for one share where your maximum downside is $100 but there’s no cap on the maximum upside.

Other asymmetric activities include going on first dates (potential upside: someone that changes your life), reading books (an idea that changes your life), starting/investing in a company (money that changes your life), and so on.

You can also have asymmetric risks happen the other way around (for example, short selling where you can theoretically have unlimited downside).

A example of what to avoid is the Archegos debacle where the investment banks made a small fixed fee but had a disproportionately large exposure to the downside.

The following are my principles for thinking about asymmetric bets.

Principle 1: Look for Leverage

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Illustration by Andrew Yu

My favourite kind is where there’s some form leverage involved, for example through capital, labour or distribution.