Mar
Remember the movie The Big Short?
You haven’t seen it? Then you must, it’s practically a requirement to be a member at Asymmetric Advisor, besides, it’s a great movie…I’ve personally watched it more than 10 times!
The movie is based on Michael Lewis’ book by the same name, The Big Short, released in late 2015.
It’s the parallel story of a few people that saw the 2008 mortgage crisis coming, and figured out how tetrode it for unbelievable returns. At first they were mocked when they tried to warn others. Eventually, they were rewarded, making billions by laying down incredibly clever bets on the eventual outcome.
Seriously, you need to watch The Big Short. It was nominated for five Academy Awards, including Best Picture. It explains complicated financial concepts in a way that the average person can understand.
Go watch the movie, it’s fun, exciting and impactful. The only problem with the movie is that it failed to explain the powerful strategy behind each of the people who figured out how to game the system. The greatest financial strategy ever devised. It only skirted around the edges, but it was entertaining none the less.
Asymmetry Strategy
The asymmetric strategy is how to take a small amount of money and turn it into a very large amount of money, how to take thousands and turn it into millions, even billions.
So, you would think with such a powerful strategy that everyone would be begging to know how to make 1000% or even 10,000% returns. Yet no one ever talks about it, and because no one talks about it, I guess the main stream investor thinks it’s a strategy only available to the super rich. This is absolutely wrong. Anyone can learn this strategy and its power to generate incredible wealth.The strategy is called Asymmetry. The Asymmetric Advisor will teach you how to make asymmetric bets.
Most traders look for symmetry in their bets, or something close to it. 1 to 1 risk to reward, some go way out and look for 1 to 3 risk to reward. But virtually no one is looking for 1 to 25 or 100 risk to reward. Why?
Successful Investors Thrive On Asymmetry
An asymmetric bet, trade, or investment is when the potential gain of a position is greater than its potential loss.
If you bet $1,000 for the probability of making $10,000, that’s an asymmetrical bet.
If you bet $1,000 for the probability of making $1,000, that’s a symmetrical bet.
Which would you rather make, $1,000 or $10,000?
You’re probably thinking that you chance of making $1,000 is much greater and less risky…well, you’d be wrong. You need to understand that if you do the homework and are willing to lose a bunch of very small bets to make a few very large wins, that the odds start dramatically shifting in favor of the Asymmetric strategy.
A very good book to learn more about this strategy is Nassim Taleb’s The Black Swan. Nassim made his FU money this way.
Most Traders Don’t Get It
Despite the obvious nature of this simple concept, most people stick with symmetrical bets, or even worse, they are willing to take asymmetrical bets in the wrong direction. Can you believe that? It’s true, in fact it’s the vast majority of people doing this.
For example, an investor will buy a stock that some expert touts as having “100% upside,” and he’ll be willing to ride the stock to zero (a 100% loss) if things don’t work out.
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- 100% upside.
- 100% downside.
- Perfect. Insane. Symmetry.
These people would be much better off going to the casino. At least there, they’ll have some fun, maybe get comped a dinner and a show. One thing is for certain, they have no business in the financial markets, yet they keep making the same mistakes.
Symmetry is for Idiots.
At Asymmetric Advisors, we won’t touch a trade with symmetrical risk to reward. When we invest in a company, or even a speculative investment, we’re looking to risk a dollar to return ten dollars, or even one hundred dollars.
Risk a small amount. Make a big return. That’s the strategy. Pretty simple. However finding these trades takes work.
How To Find Asymmetric Opportunities
Let’s face it, if you’re not pursuing strategies that are asymmetrical, then you are pursuing pain. It’s a bad bet, pure and simple.
So, how do you discover asymmetrical trades, where are they, how are they discovered?
In its simplest form, let’s say you find a stock that has 300% upside potential, and you decide that if you enter this trade that you’ll allow no more than a 25% loss. That is an asymmetrical bet.
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- Upside of 300%.
- Downside of 25%.
- 12 to 1 odds.
Stocks with massive appreciation potential have asymmetric risk/reward profiles. This is in large part why we focus on junior miners and other natural resource sector opportunities.
Consider this, it costs very little to drill a few hundred cores in a tract of land, to discover a spot that could pull out a million ounces of gold, or to drill a $100k well and pull out $2 billion in oil. But it’s not only natural resources, it’s all commodities. These are the basic building blocks of all products that people consume. Their demand can be seasonal, affected by weather, natural conditions and supply and demand. They go through great boom and bust cycles, creating something called extreme cyclicality.
Just look at some of the basic commodities like copper, natural gas, or silver…any of these can go from decade lows to sky rocket 125% in a few months if the forces of demand come into play. It happens all the time.
The key is to buy these stocks after busts and sell them before the boom. And while the volatility might seem like a no-go for you, then your idea of position sizing is way off. We are about making small bets for big wins. We would never commit more than 5% of our capital to any single trade.
Even 5% might be too much for some accounts. The idea is that you want to make a lot of small trades, knowing that not every one will explode, but also knowing that some will. And when they do, it will more than make up for the small losses. This is how you create life-changing wealth, or what Taleb calls fuck you money.
Student of Volatility
Volatility is your friend, but uncertainty is not. That’s why when you go to the table to make a bet, you want to make sure you are dealt pocket aces. It doesn’t guarantee you a winner, but your odds are dramatically increased if you know you’re getting those pocket aces and you know what everyone else is being dealt. This is the secret. When we make these bets, we know the playing table we know the cards being dealt.
If you know how to handle the volatility, the natural resource sector can be a constant source of high-quality, asymmetric bets that build wealth for you. You can make returns in 10 months that take most people 10 years to make.
If you focus on asymmetric bets, which are commonplace in the resource market, there are no guarantees you’ll make billions like the guys who inspired The Big Short. But we can guarantee it will dramatically improve your results.
