Before jumping into the content, it’s important to understand the context this series has been recorded in.
It’s common for people to refer to asymmetric investment opportunities as anything with a large amount of potential upside. What is often missed is the other half of any trade – the potential downside. We use a real life example of how investors mistake bigger trends – and in some cases, blind luck – for asymmetry, and explain how the reality of identifying something asymmetric is far more nuanced than simply finding something that can “go to the moon”.
We don’t start our hunt for asymmetry by finding stocks or assets demonstrating asymmetry. That’s putting the cart before the horse. Instead, we start by looking at the world, what’s going on in it, where capital is now and where it’s likely to go in the future, so that we are giving ourselves the best shot at investing in the tide, rather than the boats on it. After we do that, we then think about how to execute…
After establishing a thesis for why a sector or industry has the right setup to be the recipient of capital flows, it’s time to look at how to select stocks. In this video, we go through how we build a basket of stocks in any given theme, to give us the best chance of profiting – and not losing money. We also go through how we use stock screening tools to build our watchlists and start to filter out stocks we don’t want versus those we do – to eventually leave us with 5 – 10 stocks that express our asymmetric view on the industry/sector/theme.
“If you want different results, do things differently”. Our allocation strategy will likely be different to what you’ve experienced before, but it is key to further reducing risk. We are essentially using the powers of probability to ensure that our winning positions are so large that they cover any losing positions – even in the event of some of our positions going to zero. This strategy further takes away some of the reliance of being good stock pickers, and shows you why it’s easier and more profitable getting the sector or industry right.
We’re investors, not traders, and so need to maintain a system that allows us to take action on our portfolio when needed, without having to constantly check our brokerage accounts, wait for markets to open and close, or be glued to the news feed in a constant state of stress. In this video we take you through our approach to managing our portfolio, as well as deciding when to manage positions and deciding when it’s time to sell.
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