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Ask HN: What are examples of activities/bets with asymmetric upside?

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Re: Ask HN: What are examples of activities/bets with asymmetric upside?

#81

Post by OJFord »

insightcheck wrote: post #15
OJFord wrote: post #7

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…

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…

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.)

Re: Ask HN: What are examples of activities/bets with asymmetric upside?

#82

Post by accountofme »

purpleblue wrote: post #8

> 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.

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.

Re: Ask HN: What are examples of activities/bets with asymmetric upside?

#83

Post by eternalban »

- 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.

Re: Ask HN: What are examples of activities/bets with asymmetric upside?

#84

Post by muzani »

redox99 wrote: post #72
thunky wrote: post #68

Earlier quoted context omitted.

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 anot…

"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.

Re: Ask HN: What are examples of activities/bets with asymmetric upside?

#85

Post by SR2Z »

thunky wrote: post #68
redox99 wrote: post #30

Earlier quoted context omitted.

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 a…

It's really that easy? Care to share another stock pick today with asymmetric upside?

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.

Re: Ask HN: What are examples of activities/bets with asymmetric upside?

#87

Post by wizofaus »

OJFord wrote: post #7

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…

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.

Re: Ask HN: What are examples of activities/bets with asymmetric upside?

#88

Post by valdagger »

nl wrote: post #59

> 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 isn't advice. Not is it intended to be actionable.

Re: Ask HN: What are examples of activities/bets with asymmetric upside?

#90

Post by OJFord »

wizofaus wrote: post #87
OJFord wrote: post #7

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…

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 t…

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.

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