Introduction
Asymmetrical risk taking is a very common practice across all of the super wealthy and elite. What’s more, they often use this to their advantage without even knowing it. To them, it is so natural and native to their way of thinking, that they do it unconsciously. For those of us that are not naturally wealthy and need to work extra hard to save and accumulate wealth, this might be one the most important articles on wealth building you read.
Symmetrical Risk and Reward
Enter Asymmetrical Risk
Whenever possible, we should seek out and bet on opportunities with positive asymmetrical risk. This means taking a risk where the reward far outweighs the risk taken, or where the distribution of random events is heavily skewed towards a particular outcome. It is usually spoken of in positive terms, however it can also be applied to negative outcomes as well. In other words, the impact and risk of loss is far greater than the possible positive reward. For the rest of the article we will be talking only of positive asymmetrical risk; but just know it can be negative as well.
As an investor interested in outsized returns, we want to seek out and capture as much asymmetrical risk and reward as possible.
Competitive Advantage
Asymmetrical risk and reward happens when because of our talents, abilities, knowledge of the opportunity, or experience, we are able to bend the curve to our advantage. Consider the title artwork for this article which showcases some of the riskiest sports and activities on earth. Through the natural talent, abilities, training and experience of some people, they are able to master the inherent risks involved and, as the proverbial saying goes, “make it look easy.” This same principle applies to investing and the accumulating of wealth.
Index Funds Serve the Perfect anti-Example
Index funds serve as the perfect example of symmetrical risk and returns. This is important, because having this under our belt will help us find the next step. Information is shared and disseminated so quickly, along with a near infinite number of market participants, that finding an edge within the capital markets is nearly impossible.
The current legal and regulatory systems in place encourage such an even distribution of information that extra ordinary means are required to gain an edge and are likely illegal.
After fees, taxes, and the time required to actively trade, your best bet is to accept the symmetrical risk and reward, allocate your assets appropriately, and move on. Study after study has confirmed this to be true. Our best chance, is to accept our chances.
How to Find Asymmetrical Risk
Simply put, take the lessons from Index fund investing and apply the opposite. Now, this being said, I’m not advocating that we avoid investing in index funds, quite the opposite. I believe index fund investing is a terrific core and fundamental investment for everyone. However, to catapult our wealth, we need to seek out and harness asymmetrical risk opportunities.
Now, we do this by seeking opportunities where we have a natural advantage, in a less liquid market, where our experience and talents can be put to use, invested and rewarded. Yes, negative events can or may occur, but through our experience and abilities, we can manage and control the outcomes to some degree. This is how we bend the curve and skew it to our benefit.
Diverse Opportunities Abound
Luckily, we live in a diverse economy where there exist opportunities for everyone. We only need a heightened sense of self-awareness towards our own abilities talents, while taking into account weaknesses. A keen sense of interest and curiosity can also serve as we endeavor to expand and learn new skills.
Invest in Yourself
We often hear that investing in yourself is the best investment. This is because it expands our knowledge base and skillset and thereby expand the opportunities we can expect asymmetrical returns from.
Places to Start
Here are some things you can do to increase your self awareness and profile your abilities.
- Review and update your current resume
- What tasks or work related activities do you not mind pouring additional time into, even without additional reward?
- Ask others what they think your talents and strengths are within the work place?
- What risks did you take as a child and seemingly do well at naturally?
- When left alone, what do you think about? How could you turn that into a business or side hustle?
- What chores, maintenance, or repairs do you actually enjoy doing on your car, home, computer, or sports equipment?
- Rank your social skills and ability to make others laugh, are you a natural leader or can you sell?
- What types of books or content in the internet do you naturally gravitate to?
- What do other people ask you for advice on?
- Do you have physical attributes that separate you from the crowd or others compliment you on?
- How good are you with money, taxes, budgeting, investments?
- How good are you with social media?
Stack Your Talents
Once you get a good sense of your natural abilities, try and see how they might be turned into services or products you could sell or invest into. Hopefully you have multiple talents – if so, you absolutely have to combine these together!
Some of the most successful people I know, have a few solid talents, interests and abilities and have found a way to combine these into a unique product or service. For example, someone who has an recognized accounting certification, mixed with a talent for computers, and expertise in SAP can command a very high wage as a third-party consultant to large organizations. However, just one of these on their own doesn’t command the high wage; it’s the unique combination that makes it so special.
Conclusion
I hope this article has given you some ideas and the importance of leveraging asymmetric risk opportunities. They truly are the best wealth creators as they present the best risk / reward profiles available. The math works out that if you take enough of these, eventually things will work out and pay off big.
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