Investing in call options on AMD in 2014 or Tesla in 2019 also had huge asymmetric upside. It was clear that these stocks had massive risks, but while the upside was potentially huge, the downside was capped at -100%.
What other examples are there?
Also welcome examples of things with asymmetric downside like texting while driving.
Honestly it bugs me a bit that I don't know the right way to model it - because so often people will slate it for having a terrible expected return (E[X]), but.. some very high percentage of us here could play every single week without noticing it (negligible downside), and yet winning however slim the chance would be somewhat life changing - even if it wouldn't make you quit work it'd be a nice windfall.
I suppose you can just view it as a microcap, very high risk investment.
I don't play, fwiw. I do have Premium Bonds, a lotteryish government scheme in the UK where you keep the invested amount and it can't go down (other than in real terms) but has a shot at winning various amounts each month up to the maximum of £1M. That's a lot easier to justify to myself, but I do wonder if it's a bit too easy to dogmatically hate on the lottery.
I don't play either. I suppose it's a nice game if you can temporarily forget some leading zeroes.
But if you invest in an index fund, there's a very high chance of getting a 15-30% return on investment, versus a near-guaranteed amount of just losing the money spent on the lottery. It may not seem like a lot each ticket, but the costs add up over time.
In exchange, I get extremely unlikely but extremely massive 'asymmetric upside'.
As I said, I don't do it, but sometimes I think actually it would be the rational thing to do. (What stops me is the thought: why stop at one ticket? how many tickets is the correct amount? clearly I don't know the appropriate way to model it (simply massive variance?) so I'll leave it alone. But it does bug me sometimes.)
From The Washington Post [1] (the links to the source studies are unfortunately broken): "When a team of economists tracked the fortunes of financially distressed people in Florida who had won the lottery, they found that within three to five years, the winners of big prizes (between $50,000 and $150,000) were equally likely to have filed for bankruptcy as the small winners, and the groups had similarly low savings and levels of debt. According to the National Endowment for Financial Education, about 70 percent of people who win a lottery or receive a large windfall go bankrupt within a few years."
However, I concede that if you win the lottery and spend it wisely (e.g. maybe invest virtually all of it and live off the interest spent reasonably), it's plausible it can greatly improve quality of life. So, assuming one acts carefully when receiving the large windfall, I agree with you now that buying lottery tickets is plausibly a good idea.
[1] https://www.washingtonpost.com/outlook/five-myths/five-myths...
Average yearly return for index fund since 1957 has been around 10%. It's been wild recent years but that should be seen as an exception.
Though you didn't specify the time period. So if you meant longer period, then fair enough.
> We're extremely fortunate in Western Australia to have the only lottery in the nation, and one of the few in the world, where all profits are returned back to the community.
In the past year they've taken in a #billion and put out some $323 million in community grants and the rest in prize money.
To be honest, it's a tax I can get behind and it's win-win as it enhances the community I live in of some 2+ million people with the provision of flying doctor services, housing near hospitals for parents with sick kids, annual festival grants, etc.
I even applied for a received a $5,000 grant as a student back in the early 1980s.
[1] https://www.lotterywest.wa.gov.au/grants/our-role-in-the-com...
TBH I don't think I'd play any other lottery - this one's pretty much about the proceeds staying local for me.
He structured his investments to be able to do this, with a portion of it generating "play money" for these wild bets.
He'd accept that his investments would thus generate lower returns due to his betting, but he needed the thrill of it.
I see lottery as the same way. If you have a lot of passive investments and don't need the money, $40-50 a week on lottery is a rationale choice as the outcome can indeed change one's life. And to a level one could not reasonably achieve with hard work alone.
If you're accustomed to having spare money to invest, not worrying about bills, have the option of taking many months off if too burnt out, then you're probably the type a) not to be playing the lottery; and b) to spread it across a few investment accounts or whatever while you think about what to do rather than splurge it.
And most importantly, anyone talking about it most definitely falls within that skew.
Obviously this only applies to something like PowerBall or Mega Millions. There is no rational reason to play the scratch off.
Lotto also has societal benefits, like funding schools and keeping organized crime out of the casual gambling market. Plus it's fun, on the order of, say, eating a mini bag of Doritos while you're stuck for three hours in a train station (but without the calories).
So why does the "I know math" crowd deplore the lottery but not voting? I'm guessing the real answer is that one is looked at as a low-class activity and one a high-class activity.
Edit: Just to be clear, my point isn't that voting is bad, it's that lotto isn't a pure math problem.
This is a terrible example. No one knew that the stocks would skyrocket. So at the time it was asymmetric on the downside because the cost of options were ridiculously expensive.
So basically invest in things where there is a big information asymmetry.
It's not really that easy because
1) There aren't at least to my eyes that many opportunities, maybe people with domain specific knowledge in other domains, will find their own opportunities. I've only made in the last 10 years maybe 3 or 4 investments in which I was extremely confident that they would succeed.
2) These investments are medium-long term, at least 2 or 3 years.
> Care to share another stock pick today with asymmetric upside?
This will not be liked by the typical HN audience, but the investment where I currently see massive information asymmetry is Ethereum.
Most people who were into crypto were oblivious that the merge was actually coming. A couple of months ago you would see in crypto forums/reddit everybody memeing that it would be delayed again and again for years. But if you were actually knowledgeable of it's development, you would know that it was coming for real (information asymmetry #1). Now that it became widely known that it's coming, ETH/BTC ratio went from 0.06 to 0.08. Easiest 33% ever.
The same way, most people are unaware of the triple halvening. Ethereum miners currently get paid ~20M USD worth of ETH per day. A big chunk of that must be sold to pay for their mining bills. After the merge, that's almost 20M USD of DAILY sell pressure that will be gone (information asymmetry #2). After some months that massive reduction in sell pressure will have an impact on price. In addition, staking rewards cannot be withdrawn until a future update (shangai). Then it will be a limited withdraw queue.
Ethereum at 1000 USD just a month ago was free money in my opinion. Now at 2000 USD I still believe it's a good deal.
To be fair, there is a lot of information asymmetry in the negatives too. There are many things that are quite bad about Eth that most people into it aren't knowledgeable of either.
Despite all that their market cap is less than a tenth of Tesla's. Until 2008, it was the biggest car manufacturer in the world and in raw technical ability they're probably better than Tesla.
I'm biased because I own a lot of stock already but I still think there's money to be made on it.
As such, there is an asymmetric upside in this case.
A bunch of friends visits a young guy who recently moved to Las Vegas. "Here's how we get twenty bucks in Las Vegas," he boasts to his friends, putting $20 on the roulette wheel for black. When it comes up red, he puts down a $40 bet, bragging that "I'll keep increasing the size of my bet until I make back my money -- plus another $20!"
One time he'd had to double his bet four times in a row, but he's convinced that his system works, and does it every time company comes to visit.
Do you see where this is going? One day he hits a horrible streak. Five times in a row he's lost the bet. (So, $20, $40, $80, $160, $320.) Now he's got to bet another $640 -- and hope that he wins. (It's getting awkward, with all his friends watching him lose, feeling bad for him...) At some point his wallet is out of cash, and he's slinking back to the in-casino ATM machine. (And the bank balance isn't infinite either...)
Conclusion? This particular strategy has an asymmetric downside. More often than not, you'll walk away with $20. But the casino knows that sooner or later you'll have that one very bad day where they'll get it all back.
So if you keep winning they have the legal right to just throw you out.
You only really benefit if you’re investing outside of your primary residence.
What’s more, the risk is huge. In the AMD example, you could lose 100% of your investment. Get things wrong with a house and you’re going to be out way more than your initial investment.
I own a home because it’s the most comfortable option for me and my family. With that said, I view it as a utility and not an investment.
I think this common argument massively overstates the case. I have friends whose parents left them their primary residence. Mine did not. "Where’s the huge upside though?" sounds to me like sort of an insane question, when viewed through that lens.
But just to lay out the argument further, here are some concrete examples of upside:
1. The money is real and you could move to a lower-cost-of-living area. Owning a house in San Francisco is like having a standing offer of a million dollars to move to the Midwest. That's not nothing. "But I don't want that million dollars, I want to stay here," is not a compelling argument. The offer exists whether you take it or not.
2. You can sell and rent and keep all the equity, which you get to invest elsewhere. Congratulations, you're now a renter, just like millions of ordinary hard-working people. The difference between you and them is the cash you put in your pocket when you sold.
3. Your mortgage payment is fixed, so it's an inflation hedge.
4. You can borrow against your equity.
5. Because you can buy with so little down, having a lot of equity means it's pretty easy to buy again, even if prices go up. An existing homeowner is much better positioned to buy than a non-homeowner, all else equal.
The benefits of owning a valuable asset don't disappear just because you don't want to sell it at the moment. The asset represents options, if nothing else.
That’s a big gamble. I thought this was about asymmetric upsides but here there’s a pretty huge downside.
Firstly, how do you realise the gain when you need somewhere to live? Primary residence != investment.
Secondly, 20x leverage shouldn’t be a selling point. A tiny dip in prices leaves you in negative equity and unable to move home. Less of an investment and more of a prison.
95% LTV mortgages tend to come with well above average rates to match the level of risk too. The gamble isn’t cheap.
Property can be a great investment but people are confusing buying a home with investing in property. They aren’t the same thing.
Put $100k down on a $500k home. House drops 20% and you now have a 100% loss of your investment.
Look at Las Vegas. It only recovered to the 2008 peak last year. It's been a terrible investment.
Even if the business fails that knowledge will often be invaluable in future jobs, projects etc.
Plus it can really help with feeling unmotivated and stuck in life.
For example are you trying to learn a new programming language (that you don't need for it), or make money.
Trying to do both a once is a sacrifice for both.
This is a great perspective. Having a strong side interest gave me a lot of happiness in times where I was set up for a lot of difficult, repetitive work over a significant stretch of time.
bribe politicians to use your countries armed forces in your companies interests
get the government to cover any downsides of your product
be the child of a politician and offer consulting services
found a central bank
there are lots more
Any udemy courses for this one?
This includes: applying to competitive positions when you don't seem completely qualified, cold calls in sales (sales seems to be heavily based on asymmetric upside, where sales people call many different people until they get a few Yes-s), and asking people to hang out just to make friends.
More related to money, I've thought that cheap (and often free) educational material to have a large potential upside. Good books are often time well-spent, as long as there is enough time spent applying the concepts too. A cheap online course on video editing (I think about $10 USD at the time) has also come in handy many times.
Typically it's not.
She politely declined.
After that our friendship was never really the same; there was always something awkward.
I regretted asking her out because that ruined an otherwise good friendship.
Personally investing into specific technologies (e.g. NVIDIA) and then passing legislation to promote those technologies benefits everyone, although asymmetrically.
Or it goes so "well" that you get married and they take half your stuff in a divorce.
Then it goes so "well" that you get married and then you take half their stuff in a divorce.
Bets "on the inside" in roulette have asymmetric upside, they pay out 35:1.
The problem is that the chance of winning is 37:1 on an American wheel.
This means that the EV is negative: do it enough times and you will lose money.
You should constrain your search to positive EV gambles.
This is unactionable advice. Call options on any stock are capped at -100%. It's choosing which ones are worth that risk that is the hard part.
A popular view before starting to learn is that everyone should "learn to code" because programming jobs are in-demand and pay well (at the pre-beginner stage). Then, when many learners actually start to learn, it can take months to write a genuinely useful program. All the way, you might learn how to do arithmetic in Python and write loops, without a seemingly practical purpose (just seemingly-contrived exercises). I admit that this actually put me off programming for a while, because I couldn't see the upside.
Eventually, a web scraper became helpful for a project, along with a better understanding of programming for tweaking a website. Then I went back to studying, and it helped me greatly to have very specific goals. So, while "learning programming" is correct, I think it will help people stick with it, if specific outcomes are emphasizes (e.g. "learn automation through programming" or "learn website application development through programming").
Binary options providers are often scams.
- 1 hour early morning walk. Just magic.
- cook and make your own food. Cheaper, healthier, and therapeutic to boot. Also a venue to making new friends, as food brings people together.
- a non-activity: get rid of the permanently attached smart device. Bet here is hours spent on a device are far less productive/helpful than equivalent without one.
If you can help people convey complex ideas, with all the context and nuance, you've created a new level of expressivity and productivity that could help us all in ways we can't even currently imagine.
Moreover when the assymetric event occurs (i.e., a meteoric rise or an abysymal crash), the loss is limited to the premium paid whereas the upside is huge.
Combine that with the Kelly Criterion (discussed widely here: https://hn.algolia.com/?q=Kelly+Criterion) you have a strategy.
There may be toxic environments where there is a large downside - losing your job - but I hope that is not the case for most who are reading this comment.
I like to think it still is.
