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"No return without risk"is a recurring theme. Yet the human survival instinct makes us rather anxious and we would prefer to avoid risks. But if you want to be successful and achieve returns, you have to take risks.
Many risks are not worth it and should be avoided. But there are opportunities that enormous potential for profit with a manageable risk of loss have. Such unequal distributions are called asymmetric risks.
In this article, you will not only find out what asymmetric risks are, but also what they are, Why young people in particular should take more risksthan older people. You will also learn how you can achieve great success with low risk thanks to an understanding of asymmetric risk.
Sounds exciting? Then let's start right away with a definition!
Asymmetric risks occur when the Potential for profit or loss unevenly distributed .
A classic example: If you invest CHF 1,000 in a start-up, the total loss could be CHF 1,000. However, if the start-up is successful, the profit could be in the millions. The risk is clearly limited (CHF 1,000), but the potential is unlimited. The risk/return ratio is therefore asymmetrical.
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The Youth is the ideal time to take targeted asymmetric risks. Why? Because young people have time - time to recover from setbacks and learn from them.
Amadeus Mozart's quote "He who has nothing to lose must dare everything" points to this fact.
Let's look at some examples of asymmetric risks in real life:
By the way: You have probably noticed that the term "bet" has been used here several times. Anyone who takes risks is betting (or speculating) on a certain scenario. Betting and speculation are not bad per se, as long as you understand what you are doing and have the risk/return ratio under control.
If you want to learn to speculate and bet, you need to understand risk. Asymmetric opportunities with high profit potential and limited loss are attractive and can be utilised especially at a young age.
At the same time, it is important to avoid unnecessary risks that could jeopardise the entire capital.
Example: If you've had a successful evening at the casino and earned a lot of money, it makes little sense to bet everything on red again before leaving. It's better not to take any more risks and take your winnings home with you.
The situation is similar for rich or old people: they have a lot to lose and less time to recover losses. Accordingly, they should take fewer risks on the stock market than young people.
"Intelligent people learn from the mistakes of others".
We have compiled our top selection for you from all our tests and experience reports:
Daniel Kahneman, a psychologist who won the Nobel Prize for his research on decision-making under uncertainty, taught us a lot about the hurdles and pitfalls of our thinking.
His insight into "loss aversion" is particularly interesting for the topic of asymmetric risks: We fear losses more than we appreciate gains.
Kahneman showed that we often play too safebecause the risk of a loss is more of a deterrent than the chance of an equally large gain is an attraction.
An illustrative example is the choice between a sure win of 50 francs or a 50% chance to win 100 francs - many choose the sure amount even though both options have the same expected value. This example helps us to understand why it is important to take targeted risks, especially when we are young and can make up for certain losses through the time factor.
In addition a Funny quote from the investor Charlie Munger:
"Show me where I will die so that I never go to that place". This applies in particular to investments.
0-20 years: Education and first steps
20-40 years: Career and wealth accumulation
40-60 years: Collection and diversification
60+ years: securing and maintaining
Identification of opportunities:
Note risk management:
Psychological aspects:
While Mr and Mrs Swiss are known to be over-insured and avoid risks wherever possible, Mr and Mrs Swiss are not. Risks necessary to realise profits.
Some risks are not worth it, while other risks can offer a disproportionately high chance of profit. This uneven distribution is known as asymmetric risk.
The concept of asymmetric risks opens up a world full of opportunities and challengesespecially when it comes to investments and life decisions. The realisation that you can achieve disproportionately higher profits with limited losses is extremely exciting. Young people in particular should be aware of this dynamic and take bold but considered risks.
"Intelligent people learn from the mistakes of others".
We have compiled our top selection for you from all our tests and experience reports:
This article is not an excuse for blind speculation, it is about that, specifically recognise bets with a positive expected value. Both the selection of the right risks and sound risk management play a decisive role here. By understanding and applying asymmetric risks, you can learn how to distinguish between high-risk and low-risk but profitable opportunities.
No matter what stage of life you are at, addressing asymmetric risks allows you to be more aware and potentially more successful in shaping your life path. Whether you are in education, building a career or in retirement, making targeted use of asymmetric opportunities can help you achieve your goals and realise your dreams.
To summarise: Considering and taking asymmetric risks are fundamental components of conscious living and investing. They enable you to think beyond the conventional and explore paths that can lead to great success.
What asymmetric risk are you taking? A career change? A journey? An investment? Share your plans in the comments!
2 responses
Hello,
What is the best way to hedge investments in shares against price falls?
Many thanks
Georges
Hello Georges,
A broad distribution across many securities is probably the most common method (not all eggs in one basket) - ETFs are a popular way of doing this.
Options and other means can be used by professionals, but they are expensive and very complicated.