Shahzad Ali
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Concepts / 08

Asymmetric bets.

I want to make several small bets where the loss is capped and the potential return can be enormous.

Ten bets. One 100× winner.

Ten equal stakes of £100,000. In this example, nine return nothing and one returns £10 million.

Nine total lossesOne outsized winner
Total invested
£1 million
Total returned
£10 million
Profit before costs & tax
£9 million

90% of the bets failed. The portfolio still returned 10× the total invested. Here, 100× includes the winning stake.

Capped downside

£100,000Maximum loss per bet

Uncapped upside

No fixed ceilingPotential return can keep growing

£0 A capped loss and an open-ended potential return A possible payoff stays above a fixed loss floor. As the business outcome improves, it rises through zero and continues upwards with an open arrow. The diagram is qualitative and does not assign probabilities or predict returns.
Loss floorBetter business outcomes
The loss stops at the agreed exposure. The potential return has no fixed upper limit. The 100× outcome above is one illustration of that open-ended upside.

The choice I am thinking about is one big bet with modest upside, or several smaller bets with the potential for very large returns. I am looking for 100× potential or more in each bet. I want to give myself several chances at an outsized outcome.

Suppose I put £100,000 into each of ten businesses. That is £1 million invested in total. If nine fail completely and one returns 100 times its stake, that one returns £10 million. After the £1 million invested across all ten, the profit is £9 million before costs and tax.

Nine out of ten failed in that example. The size of the winner paid for all of them and left a substantial profit. That is what I mean when I talk about asymmetric business bets.

I look for opportunities where my loss is limited to what I commit, and my participation in the upside can keep growing. The 100× is an example of a successful outcome. The potential return has no fixed ceiling.

Before I commit, I want to understand my total exposure and know that I can afford to lose it. Then I can keep making decisions, learning and taking the next bet.

Can one outsized winner pay for several failures?

Illustrative outcome: equal stakes, nine total losses and one 100× gross return, including the winning stake. The 90% failure rate describes this scenario; it gives no assurance of a winner. Costs and tax are excluded. A loss cap depends on the actual commitments and obligations.