Posted November 14, 2023
Years ago, Jeff Bezos sat on stage and gave away his biggest secret to success.
No, it’s not being “obsessively focused on customers rather than competitors.”
Although sure that was crucial.
No, it’s not having a “bias for action.”
Good, but not quite there.
It’s not even about the power of setting audacious goals and “thinking big.”
All of these were important to Bezos’ success, but they’re all toothless without understanding one simple thing: the art of the asymmetric bet.
In Bezos’ own words:
“If I said you have a 10% chance of a 100x return, you should take that bet every time. You're still going to be wrong nine out of ten times. It's gonna feel bad nine out of ten times… but the payoff is very asymmetric.”
He explained further with an analogy:
If you swing for the fences, you’re going to strike out more…
And you’re also going to hit a lot more home runs.
But there’s a BIG difference between baseball and investing.
Your upside is capped in baseball. The max amount of runs you can get in baseball is four.
With investing, it’s different.
A home run could rake in a thousand runs. Maybe more.
The Art of Asymmetric Opportunities
Asymmetric opportunities refer to investments or commitments that bring in disproportionately high returns compared to their risks.
These investments are like ripe truffles in a forest. They require early identification -- within a limited window -- and, yes, a bias for action.
To most, they’re usually only obvious in hindsight.
Bitcoin is the most famous example of the 21st century.
In hindsight, why wouldn’t you throw $100 into a tiny experimental currency called Bitcoin in 2012?
Most people didn’t. Some of them still lay awake at night wondering what could’ve been…
Even if they took one hundred $100 bets that year and 99 of them failed… they would’ve been set for life from that one tiny Bitcoin bet.
Even if they took ten thousand $100 bets -- in everything from obscure stamps to penny stocks -- and 9,999 of them went to ZERO… same thing.
$100 in Bitcoin in 2010 is worth over $69 million today.
Yes. Spotting these opportunities is easier said than done, I know.
But this is the “secret sauce” of guys like Bezos (and guys like Altucher, too).
They take asymmetric bets in some aspects -- maybe all aspects -- of their lives…
They failed WAY more than they won…
But they knew all they needed was one moonshot.
For investors, it looks something like this:
1.] Identify fringe/cringe/hated/obscure, but potentially exponential bets.
2.] Read. Read. Read.
3.] Take lots of measured bets.
It only takes one or two of these bets to become a Tesla or Amazon to set you for a lifetime.
We talk a lot about crypto and AI because there’s no shortage of these opportunities blooming every other week.
But there’s another sector that doesn’t get nearly as much love: Biotech.
For that, I wanted to give some spotlight to our colleague and in-house biotech maven, Ray Blanco.
Ray’s had his finger on the biotech pulse for decades. And just recently he gave his intermittent “state of the market” for 2023 and beyond.
If you’re interested in asymmetrical bets, Ray’s one guy to keep in the rotation.
Check out his thoughts below.
The State Of The Market: 2023 And Beyond
With the holidays quickly approaching, that means that 2023 is drawing to close.
We’ve seen some big developments in tech, mostly in the realm of artificial intelligence, but also in revolutionary fields like quantum computing, alternative energy, and biotech.
This year seems to have been a good one in the markets, with the S&P currently up over 15% year-to-date.
But this positive outlook starts to fall apart once you look under the hood…
The S&P is weighted by market cap, so the overall success in 2023 of mega-cap companies like Microsoft (NASDAQ: MSFT), Apple (NASDAQ: AAPL), and Nvidia (NASDAQ: NVDA) counts for a lot more than the struggles of smaller companies.
This shows in the S&P 500 Equal Weight Index, which as you would guess counts all companies listed on the S&P equally (regardless of market cap) is actually down on the year.
That reveals that 2023 has been a year of the Haves & the Have Nots, which does not bode well for tech investors that are on the hunt for breakouts from smaller companies.
But there is a huge silver lining to this cold market.
Many smaller tech companies are trading for less than cash.
The XBI biotech index is sitting near its five year lows, despite lots of good news coming out of that sector.
Lots of insiders and institutional investors are filling up their carts on these dirt cheap stocks with huge breakout potential.
With the Fed pausing their rate hikes, it should be a lot easier for smaller companies to start raising cash and finally keep pace with the giants in the tech market.
Gazing into the crystal ball…
I see tech finishing out 2023 strong with even bigger things in store for it in 2024, and beyond.
Our team is busy spotting the best opportunities.
Stay tuned for more.