Financial Investment

Asymmetric Investments: Investing Smartly for Higher Returns

Introduction

A key tenet of finding passive income opportunities is figuring out where to invest your time and money up front for those long term solid gains that will not require extensive efforts.  The concept of asymmetric investing can be a corner stone of a passive income strategy.

Investing is much more than buying assets and sitting back and expecting capital gains month after month. There is no shortage of people who thought they were investing smartly, but their money vanished in stock market crashes or bad deals. Most quick money-making investments that your friends and relatives drag you into usually don’t work that great in reality. Although most people find traditional investment an easy method of earning a passive income, asymmetric investments are different. They require some homework, know-how of the financial industry and a sharp eye for details.  

As always ANY type of investment comes with risk.

Asymmetric Investment: Investing for Higher Returns

You might think investing in rental properties is a foolproof investment. But what you might not know is the fact that rental investments require skills and experience that help pick the right properties, at the right place at the right time. Even if you meet all these criteria, you’d still need a solid referrer network and agents for maximum occupancy. Then there are traditional investments which require you to have at least a hundred thousand dollars to get started otherwise you’d get very little in return.

Buy Low, wait for the Market to Rebound

This leaves us with a strategy that encourages investing in areas that are currently priced very low and perceived as ‘out of favor’. However, their fundamentals indicate an obvious rebound, which means a 5-10X gain over the next couple of years. This usually happens when an asset has been severely mispriced by the market and although currently out of favor, the potential of future gains remains huge.

Known as asymmetric investing, this type of smart investment is what attracts some of the greatest investors as well as hedge funds. The cost entry/investment relative to potential gains is asymmetric, thus asymmetric investment. If fundamentals seem good and the country/industry/asset is currently out of favor, you can expect the market to wake up and rebound in the near future.

However, such opportunities are not for the faint hearted as there is always a certain degree of risk involved in asymmetric investments. Asymmetric investment is generally considered a game of experienced investors, but it’s also a game most ‘normal’ investors can play because:

  • You don’t need a ton of money to get started
  • Buy-low investment approach means you have little to lose
  • You don’t have to wait for your investments to rebound back to all-time-highs, only a little improvement would also mean a decent earning

How to Spot an Asymmetric Investment Opportunity

Spotting a GOOD asymmetric investment opportunity is perhaps the most difficult part of the equation and there is no definitive guide about that. It’ more like investing when others are pessimistic, but you need to make sure that the fundamentals are strong, and you buy when the price is low. Asymmetric investment also requires quite some nerves and works for those who can take the pressure. This type of investment is suitable for independent thinkers who are willing to act differently than the crowd. Even if you are able to spot a good opportunity and are willing to take the risk, you’ll still need to work out the specifics of the investment, which include the exact stocks to buy.

Considering all the things you have to be careful about while investing ‘asymmetrically’, the safest way for beginners to invest is to follow other smart investors. These investors are part of an extensive network of savvy contacts that can mean the difference between winning and losing. Each smart investor has his/her own unique style and approach towards asymmetric investment, which means you should follow the one you personally admire.

Some appreciate Warren Buffett, while others prefer Charlie Munger, but gaining access to any of them is very difficult, while they also like to keep their ideas for their own hedge funds. So how do you overcome this obstacle? The answer is not straight forward as it involves keeping updated with their tweets, posts and research work and using your own imagination and intuition to guess what might be going on under the hood.

Investment Types to Avoid

Get-Rich-Quick Schemes

When trying to find a good investment opportunity, you’d come across many get-rich-quick schemes, which you should definitely avoid. You don’t need to listen to anyone who says you could earn a lot of money without any risk. We already have had enough of the Nigerian prince stories and it’s time to move on and be more realistic about our expectations and returns.

Investing Directly in Tech

Investing directly in technology might not be a good idea, especially for beginners who don’t know how the industry really works. When it comes to the tech industry, it’s very hard to predict what’s going to happen next. Investing in an Exchange Traded Funds (ETFs) can be more fruitful since they combine different companies into one fund to mitigate the risk of losing everything on a single company.

Avoid Investments with Restricted or No Access

High return opportunities that require a ton of capital or are accessible to only a select few should be ignored, including startup financing, private equity and businesses. Only invest in companies that allow ‘normal’ investors to get onboard without requiring them to invest a lot of money.

Conclusion

While asymmetric investments might not be everybody’s cup of tea, they have the potential for multi-fold gains which is not something traditional investments usually offer. Spotting the right opportunity and having the nerve to hold onto it is the key in these investments, while there is no shame in following footsteps of smart investors who have a solid track record of turning pennies into pounds. Taking advantage of the changing markets is the key here but buying low while ensuring that the fundamentals are strong means hope for better returns or even multifold growth.