Ask HN: What are examples of activities/bets with asymmetric upside?
99 comments
This might be simplistic, but the concept of "asymmetric upside" might be captured in any situation where "the worst thing can happen is that the person says no."
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.
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.
Of course, this is only trivially true when "the worst thing that can happen is they'll say no" is true.
Typically it's not.
Typically it's not.
I've asked a friendly girl who I've known for a while out on a date.
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.
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.
> 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 wa potentially s huge, the downside was capped at -100%.
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.
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.
I don't know where he gets the 2014 AMD thing from, but investing in AMD in 2016/2017 was the easiest money I've ever made. I think there is a massive information asymmetry[1] in this space. If you could interpret both the leaks and the news related to AMD Zen, and Intel process being mega fucked, it was an investment with the odds highly in your favor.
So basically invest in things where there is a big information asymmetry.
[1] https://en.wikipedia.org/wiki/Information_asymmetry
So basically invest in things where there is a big information asymmetry.
[1] https://en.wikipedia.org/wiki/Information_asymmetry
It's really that easy? Care to share another stock pick today with asymmetric upside?
Not financial advise
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.
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.
"This will not be liked by the typical HN audience..."
Not to be rude, but this hits the nail on the head. Most of the asymmetric investments are unpopular. Buying something unpopular seems to be a requirement for doing well -- the whole buy when people are fearful, sell when people are hopeful.
It's not just HN, crypto bros generally won't recommend ETH either.
Maybe having a good risk/reward ratio just isn't interesting. It's why people don't sing praises of PHP or Excel.
Not to be rude, but this hits the nail on the head. Most of the asymmetric investments are unpopular. Buying something unpopular seems to be a requirement for doing well -- the whole buy when people are fearful, sell when people are hopeful.
It's not just HN, crypto bros generally won't recommend ETH either.
Maybe having a good risk/reward ratio just isn't interesting. It's why people don't sing praises of PHP or Excel.
It's not obvious to me how to estimate how much ETH should actually cost. A merge or triple halvening may move the price, but how do we know the current price of $1900 is even remotely reasonable? Is it even possible to measure without comparing it to itself or to other crypto coins?
It seems like the absolute price doesn't actually matter. Everyone is only paying attention to relative price changes. But if you look at the absolute price, why does a single BTC cost the same as a 2022 Toyota Prius?
It seems like the absolute price doesn't actually matter. Everyone is only paying attention to relative price changes. But if you look at the absolute price, why does a single BTC cost the same as a 2022 Toyota Prius?
I highly supect that GM is undervalued. They were one of only two companies to sell enough EVs to disqualify themselves for the old tax credit, they're heavily invested in mass production of more, you don't need to worry about Elon Musk tweeting something dumb and tanking the stock, and they majority-own Cruise who are way closer to self driving than Tesla probably ever will be.
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.
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.
I think GM has two weak spots:
First, they have poor to negative brand equity for some customers.
My family always had Japanese and Korean cars, so when I think of GM, I think of the ugly Cavaliers that so many of my classmates got as first cars in high school, and their long string of equally mediocre descendants. How do you beak that impression? Hyundai did it by giving out enough warranty that people didn't need to trust that the cars were built to last.
For EVs, I could almost see a case for a new psuedo-independent brand like Saturn. You don't need to remind people of those rusting old Chevys, but maybe there's a vague reminder that the endeavour is backed by Daddy GM's finances and infrastructure, so it's a less risky choice than buying a Lucid or Rivian and hoping the firm's still there in five years. Reinventing Hummer is an interesting take on it, but it's hardly selling to the people thinking "I can get the Prius, the Niro, or spend a little more and go full-electric and get even BETTER TCO on my grocery-getter." It's a shame they spun off Electro-Motive-- the branding would have been perfect.
Second, being a large player limits their ability to milk the growth narrative. Tesla can be overpriced (and as someone with WAY too much tied up in $TSLA, it freaks me out), but people can keep treating it like they're buying into the "future #1 brand" rather than the "already #1 brand with only downwards to possibly go"
First, they have poor to negative brand equity for some customers.
My family always had Japanese and Korean cars, so when I think of GM, I think of the ugly Cavaliers that so many of my classmates got as first cars in high school, and their long string of equally mediocre descendants. How do you beak that impression? Hyundai did it by giving out enough warranty that people didn't need to trust that the cars were built to last.
For EVs, I could almost see a case for a new psuedo-independent brand like Saturn. You don't need to remind people of those rusting old Chevys, but maybe there's a vague reminder that the endeavour is backed by Daddy GM's finances and infrastructure, so it's a less risky choice than buying a Lucid or Rivian and hoping the firm's still there in five years. Reinventing Hummer is an interesting take on it, but it's hardly selling to the people thinking "I can get the Prius, the Niro, or spend a little more and go full-electric and get even BETTER TCO on my grocery-getter." It's a shame they spun off Electro-Motive-- the branding would have been perfect.
Second, being a large player limits their ability to milk the growth narrative. Tesla can be overpriced (and as someone with WAY too much tied up in $TSLA, it freaks me out), but people can keep treating it like they're buying into the "future #1 brand" rather than the "already #1 brand with only downwards to possibly go"
easy peasy.. nvidia assyemtry to the downside. short
Biggest regret was taking a hedge fund job and liquidating my 5k$ of amd because I didn’t want to deal with the paperwork
The point isn't whether you "knew" the stocks would skyrocket. It's whether they could with some reasonable/acceptable probability. I remember these stocks being in the doldrums in each of those years and thinking that they could explode with a little execution. I was thinking of buying the stock (but didn't). If I was thinking along the lines of the call option (adding more asymmetry), I might have pulled the trigger. This isn't a "hindsight is 20-20" example.
No, this is the perfect her care for an option. This gives the buyer and option to buy or sell at an agreed upon price. The buyer of the option pays a premium, and only loses that if they choose to not exercise the option. If they exercise the option they also have to pay the agreed upon price.
As such, there is an asymmetric upside in this case.
As such, there is an asymmetric upside in this case.
The lottery.
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.
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.
The value is not in the winning part, it's in dreaming of winning. Compare that to a movie ticket, not an investment. At least before it becomes a habit. I'd guess people who buy one lottery ticket every year get much more enjoyment out of it than those who buy one every week.
I don't play either. I suppose it's a nice game if you can temporarily forget some leading zeroes.
I don't play either. I suppose it's a nice game if you can temporarily forget some leading zeroes.
Opportunity costs make the lottery a poor option. If you could only invest money in the lottery and nothing else, sure, it's better than no chance of multiplying your income.
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.
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.
If I bought a single ticket every single week, my cost is £52pa. I wouldn't miss it, fortunately, and I especially wouldn't miss the £7.70-£15.40 extra growth in my investments from putting it there instead as you advise. (And that's pretending that I can reliably get 15-30% every year.)
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.)
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.)
A 30% return on the amount spent on tickets would not improve quality of life drastically for most people. Winning a big jackpot would. That creates a situation in which expected value might not be the best metric. Measuring it in expected quality of life, for example, would favor playing for many people including likely most reading this.
Quality of life is an interesting frame, though through that lens, some research tends to show that many (but not all) lottery winners actually are worse off in terms of life quality after winning.
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...
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...
> there's a very high chance of getting a 15-30% return on investment
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.
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.
I throw ~ $10 a fortnight at the State Lottery with zero expectation of winning (ie. lower than the formal E() chance of winning)
> 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...
> 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...
The lottery just an optional tax on people who either like to dream ... or are bad at math :).
I occasionally tag in to check their procedures | results (ongoing math consulting group job) so I know what my chances are and have no serious thought of winning big - I "play" because I can afford it, because I approve of where the money goes, and because between small ongoing "wins" (it does a good trickle payout), past grants, and salary from checking their books it's been an essentially break even venture to date with an outside chance of millions ..
TBH I don't think I'd play any other lottery - this one's pretty much about the proceeds staying local for me.
TBH I don't think I'd play any other lottery - this one's pretty much about the proceeds staying local for me.
I knew a fella who systematically bought call options. He would lose most of the time. However, once he bought AAPL calls (many years ago) and rolled over the winnings to buy more. Turned 10k to several million.
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.
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.
due to the odds involved in winning lottery, lottery is basically a tax on people who do not know maths
How many winners would claim the best thing that ever happened to them in life was winning the lottery though? I've read plenty of anecdotes of people who've won big only for it to destroy relationships, sense of self/purpose in life and other things that turn out to matter more than sudden "unearned" piles of money. I've never come across a story of anyone for whom winning the lottery was genuine positive force in their life. I guess that's the easiest reason to "hate" on the lottery from where I sit.
Well to be blunt, I think the audience skews less educated, lower socioeconomic class. The more incomprehensible the windfall the harder it will be, inevitably, to cope with.
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.
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.
That's utility theory under a risk seeking utility function. You model E(U(x)) instead of the risk neutral E(x).
Richard Thaler, I believe, talks about how the lottery can be a rational bet. As there is very little downside if not played frequently, but if you win, as unlikely as it is, it is life changing.
Obviously this only applies to something like PowerBall or Mega Millions. There is no rational reason to play the scratch off.
Obviously this only applies to something like PowerBall or Mega Millions. There is no rational reason to play the scratch off.
The lottery seems like a really dumb thing.
Compare it to something like voting. There's a vanishingly small chance that your personal vote is going to sway any issue. The benefits of voting are only felt at a societal level rather than a personal one.
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.
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.
My view is that voting can still have a significant impact, even if you lose an election. A district seen as "safe" for one party that suddenly becomes more contested after one election (which happened many times recently) can inspire more attention to the district and its issues by more parties.
A narrow win or loss, in many contexts, can also lead to different decisions by the winners (especially if they seek re-election later) compared to a massive win or massive loss. In addition, voting is free (except for the time spent), whereas the costs from lottery tickets can add up.
I agree with you, though, that the lottery can actually have societal benefits. A notable example is that in Georgia, USA, a scholarship program for university is funded entirely by the state's lottery system (source: https://en.wikipedia.org/wiki/HOPE_Scholarship).
A narrow win or loss, in many contexts, can also lead to different decisions by the winners (especially if they seek re-election later) compared to a massive win or massive loss. In addition, voting is free (except for the time spent), whereas the costs from lottery tickets can add up.
I agree with you, though, that the lottery can actually have societal benefits. A notable example is that in Georgia, USA, a scholarship program for university is funded entirely by the state's lottery system (source: https://en.wikipedia.org/wiki/HOPE_Scholarship).
The vast majority of lotto cash comes from poor people. It’s a regressive / intelligence tax.
The government encouraging poor people to make a poor financial decision is really bad social policy IMO.
The government encouraging poor people to make a poor financial decision is really bad social policy IMO.
"For example, usually asking someone out on a date has huge asymmetric upside. You might hit it off and end up being in a happy relationship. If not, you'd just be a little embarrassed and maybe awkward with the person afterward."
Or it goes so "well" that you get married and they take half your stuff in a divorce.
Or it goes so "well" that you get married and they take half your stuff in a divorce.
I guess the asymmetric upside is you asking someone on a date who is extremely successful.
Then it goes so "well" that you get married and then you take half their stuff in a divorce.
Then it goes so "well" that you get married and then you take half their stuff in a divorce.
Asymmetric upside is only really useful if the EV is positive.
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.
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.
Excellent and important point
Buying a house in the United States. For as little as 5% down, and low-single-digit-fixed rates over a 30-year term, you can purchase an asset worth hundreds of thousands of dollars and you get to keep all the upside if its value goes up (which is historically quite likely, especially since housing policy in the U.S. deliberately keeps supply low). It's insane leverage, an excellent inflation hedge, and you get to deduct the interest payments from your taxes, to boot. Oh, and when you do sell, a bunch of that upside (up to $500k) is tax-exempt if it's your primary residence.
Where’s the huge upside though? You need a roof over your head so if your property goes up 10%, so has every property you’re likely to want to move to when it comes time to sell.
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.
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.
> You need a roof over your head so if your property goes up 10%, so has every property you’re likely to want to move to when it comes time to sell.
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.
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.
> I have friends whose parents left them their primary residence. Mine did not.
I fail to see how that factors in to buying a property. You have friends who benefited from an inheritance.
> Owning a house in San Francisco is like having a standing offer of a million dollars to move to the Midwest.
Owning a house in the Midwest is like having an $xyz offer to move to <area with even lower house prices>. The offer exists whether you take it or not.
You could sell up and live in a tent too.
I don’t believe most people are willing to uproot their lives simply because they can get cheaper housing elsewhere. I’m sure it factors in but it’s rarely the driving motivator.
I think some of the points you made were fair. As a homeowner for instance you do generally have access to cheaper capital.
> You can borrow against your equity.
What equity? You advocated for putting as little as 5% down. You’re already going to have a higher than average interest rate and with such a small deposit it’ll be easy to tip into negative equity.
You only see the benefit years down the line and that relies on house prices rising in the short term.
> Because you can buy with so little down, having a lot of equity means it's pretty easy to buy again,
I’m not really following this argument. You’re suggesting buying with a small downpayment. You don’t have a lot of equity.
I fail to see how that factors in to buying a property. You have friends who benefited from an inheritance.
> Owning a house in San Francisco is like having a standing offer of a million dollars to move to the Midwest.
Owning a house in the Midwest is like having an $xyz offer to move to <area with even lower house prices>. The offer exists whether you take it or not.
You could sell up and live in a tent too.
I don’t believe most people are willing to uproot their lives simply because they can get cheaper housing elsewhere. I’m sure it factors in but it’s rarely the driving motivator.
I think some of the points you made were fair. As a homeowner for instance you do generally have access to cheaper capital.
> You can borrow against your equity.
What equity? You advocated for putting as little as 5% down. You’re already going to have a higher than average interest rate and with such a small deposit it’ll be easy to tip into negative equity.
You only see the benefit years down the line and that relies on house prices rising in the short term.
> Because you can buy with so little down, having a lot of equity means it's pretty easy to buy again,
I’m not really following this argument. You’re suggesting buying with a small downpayment. You don’t have a lot of equity.
> I fail to see how that factors in to buying a property. You have friends who benefited from an inheritance.
I mean, somebody had to decide to buy the house at some point in time. I would have told them to do it.
> Owning a house in the Midwest is like having an $xyz offer to move to <area with even lower house prices>.
Yes, that is correct. The argument generalizes.
> I don’t believe most people are willing to uproot their lives simply because they can get cheaper housing elsewhere.
If I offer you a million dollars to move, then you're free to turn that down. What you are not free to do is pretend that it's not a real offer that you have that other people don't have. It exists. It's real. And if you own a home in California, then you have that offer. And other people do not. What you choose to do with that offer is up to you.
> What equity? You advocated for putting as little as 5% down. You’re already going to have a higher than average interest rate and with such a small deposit it’ll be easy to tip into negative equity.
The house I bought in 2020 is worth $xxx more today than what I paid for it. Had that not happened, then I'd just live here, either way, and I'd be in no worse position than had I stayed in the apartment I left to move here. (As you yourself argued, I need a roof over my head, anyway.) Since it did happen, I get to keep every bit of the upside, tax free.
I mean, somebody had to decide to buy the house at some point in time. I would have told them to do it.
> Owning a house in the Midwest is like having an $xyz offer to move to <area with even lower house prices>.
Yes, that is correct. The argument generalizes.
> I don’t believe most people are willing to uproot their lives simply because they can get cheaper housing elsewhere.
If I offer you a million dollars to move, then you're free to turn that down. What you are not free to do is pretend that it's not a real offer that you have that other people don't have. It exists. It's real. And if you own a home in California, then you have that offer. And other people do not. What you choose to do with that offer is up to you.
> What equity? You advocated for putting as little as 5% down. You’re already going to have a higher than average interest rate and with such a small deposit it’ll be easy to tip into negative equity.
The house I bought in 2020 is worth $xxx more today than what I paid for it. Had that not happened, then I'd just live here, either way, and I'd be in no worse position than had I stayed in the apartment I left to move here. (As you yourself argued, I need a roof over my head, anyway.) Since it did happen, I get to keep every bit of the upside, tax free.
> The house I bought in 2020 is worth $120k more today than what I paid for it.
You bought at just the right time. Would buying the same property at 95% LTV be a great decision today?
With potential for a major loss, where’s the asymmetric upside the OP asked about?
I bought 6 years ago and prices remained flat for the first 4 years. It wasn’t until the pandemic fuelled boom that I saw any meaningful growth.
Had I chosen to sell before 2020 it would have been a negative “investment” once costs had been factored in.
You bought at just the right time. Would buying the same property at 95% LTV be a great decision today?
With potential for a major loss, where’s the asymmetric upside the OP asked about?
I bought 6 years ago and prices remained flat for the first 4 years. It wasn’t until the pandemic fuelled boom that I saw any meaningful growth.
Had I chosen to sell before 2020 it would have been a negative “investment” once costs had been factored in.
> I don’t believe most people are willing to uproot their lives simply because they can get cheaper housing elsewhere. I’m sure it factors in but it’s rarely the driving motivator.
Retirees and other fixed income people may have a different opinion. Where I am in Colorado, a bunch of boomer-aged people seem to be disappearing to places that have a lower cost of living, with or without bubble payouts.
Retirees and other fixed income people may have a different opinion. Where I am in Colorado, a bunch of boomer-aged people seem to be disappearing to places that have a lower cost of living, with or without bubble payouts.
It’s an asset you buy with 20x leverage with up-only price action supported by government intervention. That’s huge upside.
> That’s huge upside.
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.
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.
Short sales, in the United States at least, limit downside. You can generally sell a house underwater and not owe anything, so the risk to you is only whatever you put in plus some harm to your credit worthiness over the next 5-7 years.
Your own argument is that you need a roof over your head, either way, so if the value doesn't increase, then you simply live there. If it does, then you keep all the profit, tax free.
No, if the value doesn’t increase, you have to live there. You no longer have the option.
Find yourself at a peak and you could be stuck for years to come.
Again, this was all about asymmetric upside. Being unable to move even as life circumstances change seems like a pretty sharp downside.
Find yourself at a peak and you could be stuck for years to come.
Again, this was all about asymmetric upside. Being unable to move even as life circumstances change seems like a pretty sharp downside.
Yes, you probably shouldn't buy a house if you imagine you'll want or need to move in the next 7-10 years. And, yes, it's also not the case that there is zero risk. It's just lots of leverage with favorable tax treatment. But it's not a magic money machine.
Leverage works both ways.
Put $100k down on a $500k home. House drops 20% and you now have a 100% loss of your investment.
Put $100k down on a $500k home. House drops 20% and you now have a 100% loss of your investment.
Unrealized losses. The risk, of course, is not zero, but you only really lose if you're forced to sell. In the meantime, you need a place to live, either way. Not a good gamble if your time horizon is less than 7-10 years, to be sure.
I'm not sure why "unrealized losses" would make anyone feel better? People need to move, get divorced, lose their jobs. "Just stay in the house and keep paying the mortgage" is not an alternative available to everyone.
Look at Las Vegas. It only recovered to the 2008 peak last year. It's been a terrible investment.
Look at Las Vegas. It only recovered to the 2008 peak last year. It's been a terrible investment.
This is more of an argument against investing at all than it is specifically about housing. Obviously, if you want upside, then you have to tolerate some level of risk. If the argument is just, "things could go badly in your life at exactly the time you're in the red," then that's true of anything.
The argument was buying a home using debt is a "high upside/low downside" bet. It's not. Leverage works both ways.
Leverage amplifies upside and downside.
Leverage amplifies upside and downside.
- sleep early, wake early, nap at noon. You're still sleeping the same amount of hours but somehow, are more productive and feel better. When I keep to a 10 pm, 5 am routine, I'm in tip top shape mentally.
- 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.
- 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.
Develop a technology that helps people convey complex ideas using narrative trails and other techniques on top of massive local storage, as portrayed by V Bush in "As We May Think" in 1945. It still hasn't been done yet, despite the problem of efficiently conveying complex information as being one of the most important challenges facing mankind (more than 75 years ago!)
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.
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.
Here's my favorite example -- in the form of a story.
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.
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.
Counting blackjack at casinos actually has asymmetric upside as OP words it. Most of the time, you're placing minimum bets slowly losing at -0.5% EV a hand, gaining information on the count. But when the count is high, you're making 8-10x bets at 1 - 2.5% EV and raking in so much, on average, that you come out ahead at like EV 1%.
This is called a "martingale" betting strategy. It's been extensively studied in probability theory. If you had infinite wealth and the casino would let you bet forever, it would work, but in real life neither of these conditions is true.
https://en.wikipedia.org/wiki/Martingale_(betting_system)
https://en.wikipedia.org/wiki/Martingale_(betting_system)
The other thing is that in Las Vegas at least casinos are private property.
So if you keep winning they have the legal right to just throw you out.
So if you keep winning they have the legal right to just throw you out.
Casinos also usually have bet minimums and maximums to thwart things like this
Classic martingale. Never fails to capture the imagination.
I coded this strategy as a roulette simulator (to learn me some Rust). You are guaranteed to win a few but as you keep playing, your loss goes to negative infinity.
https://github.com/flipbit03/roulette_simulation
https://github.com/flipbit03/roulette_simulation
This is an good point. From the perspective of a casino, most of their games have asymmetric upside.
This is why wearable computers were invented . . .
[1] https://en.wikipedia.org/wiki/The_Eudaemonic_Pie
[1] https://en.wikipedia.org/wiki/The_Eudaemonic_Pie
Legal insider trading.
Prominent example are US Congressmen.
Personally investing into specific technologies (e.g. NVIDIA) and then passing legislation to promote those technologies benefits everyone, although asymmetrically.
Personally investing into specific technologies (e.g. NVIDIA) and then passing legislation to promote those technologies benefits everyone, although asymmetrically.
Starting a side hustle business? For "$10k" work of effort it could lead to many times that in revenue in the future.
I would add to this, a side hustle business where you learn something new.
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.
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.
Yes I like this approach. One must be careful that the learning something new doesn't become the priority.
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.
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.
> "Plus it can really help with feeling unmotivated and stuck in life."
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.
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.
Just expanding on the call options, one can even take a neutral hedge position by buying PUTs and CALLs at the same strike price. So, in essence you are betting that the price won't stay at the same level and would either rise or fall. Your net option premium is higher (approx. 2x of just buying a CALL opt or PUT opt only) but your long-term risk is much lesser (considering a sequence of bets) as scrips tend to be on an uptrend or downtrend in a given window and much less frequently get stuck in a range bound behavior.
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.
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.
Asking for a raise or a promotion. The squeaky wheel gets the grease.
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.
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.
capture a regulator and have them put your competitors out of business
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
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
>found a central bank
Any udemy courses for this one?
Any udemy courses for this one?
All of these are correct
> 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%.
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.
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.
This isn't advice. Not is it intended to be actionable.
Good insurance. Paying a fair amount of money to hedge against rare but potentially ruinous events - like your house burning down - is obviously a good strategy. The trick with insurance is finding the sweet spot between paying too much for cover you don't need or too little and being exposed to gaps in your cover. Lately I've been increasing all my excess values to bring down premiums, because I can afford to pay a high excess and it's unlikely I'll need to.
Learning programming.
This is a good example, but I've found that this benefit is actually non-obvious to people in the beginner stages of learning.
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").
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").
Options in general have asymmetry built in; that's the point of using them for risk-management. The idea is that the buyer pays a flat amount for the privilege of limiting the downside risk, and the seller is expected to know what they're doing and rake in that flat fee in exchange for being able to handle the rare-but-severe unlimited downside.
Networking, you never know who you might meet and how useful they might be in the future. PG said in an YC talk "put yourself in the position to get lucky". Networking is one of those ways.
College education is/was one. Hard to tell these days with the high debt that comes with it for many but it can mean a complete change of lifestyle for the individual and his/her family.
I like to think it still is.
I like to think it still is.
Investing in Bitcoin in 2011 after learning about it on Hacker News.
I wish there was a financial instrumented which is regulated and allows to bet on a stock decreasing while the potential loss is limited.
Binary options providers are often scams.
Binary options providers are often scams.
Buy/Sell an options spread? Risk is capped at the size of the spread x your stake. Theta decay is offset somewhat.
Moving. All the famous actors moved to New York or LA at some point. Elon Musk moved out of South Africa, Silicon Valley, etc.
Buy crypto while I'm awake, sell about ten minutes before I wake up.
Health, education.
Asymmetric downside - sharing ideas that you could potentially personally benefit from just because somebody gave you some inspirational hippie BS wisdom like “we’re all working for the progression of humanity”. Wake the f up, welcome to capitalism, the snakes just took you for all the creative brain power you had.
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Running a casino
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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.