Emma’s Note: Tom Dyson, Bill’s good friend and colleague, knows a thing or two about risk. A couple of years ago, he took the biggest one of his life. He walked away from his conventional life… and took his ex-wife and their three kids off on the adventure of a lifetime. They’re still on the road and having the time of their lives.
And he knows a thing or two about taking big risks in his financial life, too. In today’s guest essay, he explains how one asymmetric bet changed his life.
Have you ever played slot machines in a casino? Or video poker on a cruise ship?
They design these games so that you win frequently. And you can get addicted to them… because at every opportunity, you have a good chance of winning. (Of course, you lose all your money eventually because these games are ultimately rigged against you.)
This way of “winning,” where you have more wins more frequently, is more compelling to the way our minds work. It holds our attention… which is exactly why the casinos use the strategy in the first place.
But if you really want to get rich, you have to do the opposite. And that’s what we call making an asymmetric bet.
Asymmetric betting is when you win infrequently. Most of the time, you lose a little bit of money… or nothing happens at all. It’s very boring, predictable, and dull.
Outsized Gains
And then, occasionally, you score a massive outsized gain.
This gain changes everything.
All your losses are erased 100 times over.
Many of the ideas I put my own money into operate this way. I expect to lose a little bit of money here and there… and I do. But occasionally, I’ll have an enormous winner.
One example is an investment I made in 2011. It was in bitcoin, the now-famous digital “cryptocurrency” released in 2009.
At the time, no one in my network knew about this oddball investment.
It was far too obscure at the time… and far too small and speculative.
But this was a true asymmetric trade.
It took me an entire weekend fiddling around with computer equipment and software, and trading bitcoins around to friends, before I made that bet.
I invested $25,000. And at one point, I held 3,330 bitcoins.
I walked away from that investment with $500,000 in just over a year.
And if I still held them today, my bitcoins would be worth over $30 million.
So there you have an example of what can happen when you score an asymmetric gain. Any losses I had incurred paled in comparison with the win.
How to Structure Your Asymmetric Bets
The way to do this in practice is to set up 10 trades altogether… realizing that nine of them are probably going to lose money.
So if you have $10,000 to speculate on asymmetric bets, take 10 positions of $1,000. Most will lose a few hundred dollars. But that tenth trade could make you $10,000… $100,000… or more.
So you see, placing smart, asymmetric bets over the long run can boost your average win rate.
It’s certainly not as comforting as “winning” at slots with every other press of the button. But it will make you a lot more money in the end.
Regards,
Tom Dyson,
Editor, Postcards From the Fringe
P.S. Right now, I’m making the biggest asymmetric bet of my life… I’ve put $1 million of my personal wealth on it… and I’m traveling the world with my family while I wait for it to come good. It’s based on a 120-year-old ratio that will tell me when it’s time to cash in my chips… If you want to find out more about my strategy, I’m going to be revealing all the details in a special urgent online briefing tomorrow night at 8 p.m. ET. There are still a few spots left… Click here to secure yours.
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