Asymmetric bets - mental model for levelling up in life
Bonus - Understand some obvious asymmetric bets to take
The core idea of asymmetric bets is of course pretty simple, and as follows
Acts where the potential payoff is massively higher than the cost of the act.
Asymmetric bets simply means bets with low downside risk and extreme upside potential. Such bets have to be found carefully and when you do, bet heavily. This works in investing as much as in life. Asymmetric bets need a keen eye to identify
For e.g. if you found a startup growing extremely fast and you have the right incentives to work there, don’t question, just get onboard
Also it’s important to understand the downside risk. I got my DNS (Deviated nasal septum) operation done 9 years back. It was a simple enough procedure but made a monumental difference to my life. My sleep quality improved significantly and I almost stopped getting cold or cough, compared to once a week earlier. It was an asymmetric bet. I obviously did my research with doctors and took inputs from people I trust.
Same goes for my 1st & 2nd startups. I created a decent business. Learnt a lot about how to create a founding team and run businesses and also gave me a 1st hand experience of the startup life. Same goes for moving cities, staying in Ahmedabad and in Bangalore gave me a view of creating a new life from scratch in a different city.
One famous asymmetric bet is that of George Soros. In 1992, George Soros bet against the British Pound and famously broke the Bank of England. Recognizing the pound's weakness, he made substantial bets against it, ultimately netting a staggering $1 billion in profits. This remarkable move catapulted him to global fame and established him as an investing legend.
The simplest way to succeed is to focus on action and doing the right actions as per the market. This means following the beaten path which is well-trodden. But taking asymmetric bets doesn’t mean this. It means being contrarian, betting against the market and opposite to what is conventional wisdom and also being right.
The investor Naval Ravikant gave some good examples of asymmetric bets on a personal level (you can imagine business equivalents), which included:
Investing in start-ups
Starting a business
Creating a book, podcast, or video
Going on lots of dates
Going to a cocktail party
Moving to a big city
Reading a classic book
Naturally, the cost of these actions varies wildly – investing in a startup will cost thousands, whilst reading a classic book is effectively free – but in each case, the potential payback far outweighs the investment you’ve put in.
So far this is all pretty obvious; but what is not so obvious is the realisation that the more you “overload” your life with such bets, the more likely you are to end up somewhere exciting. If you do any one of these things just once, the overwhelming likelihood is that nothing will come from it, and you’ll think “well that was a waste of time”. However if you do a wide variety of such things daily, you will gradually start to see returns as the wins start to unpredictably trickle through.
Another way of articulating the same idea is to think about it as simply opening yourself up to opportunity, and giving yourself “optionality”. We’ve all heard the phrase “you make your own luck”, well that’s basically what this is. The person who goes to 1,000 cocktail parties will almost certainly generate more opportunities than the one who goes to 5. They won’t have been “lucky” however – not really – instead they were just living in a manner that invited options; options to which they simply need to say “yes” or “no”.
Asymmetric bets then are not so much individual things, but rather a way of life. A habit and a mindset which bears unexpected fruit – and the opposite of the more conventional mindset which focuses itself narrowly on the cultivation of “expected fruit”.
So how do you identify if it’s an asymmetric bets? Cases where the downside of taking that option can be hedged or mitigated to some extent whereas the upside is multiples of the downside. Also remember it’s a bet, so you can try it out and backtrack if it doesn’t work. For e.g. working for a startup. Work for a few years if it doesn’t then move on. Same as a new group of friends, go to a few events/parties with them and if you don’t have fun then move on.
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