On the surface, buying a stock presents asymmetric risk in the positive direction – you can’t lose more than you put in, but theoretically you can make infinite returns.

In reality, that isn’t true.

Who in their right mind will keep a stock after it grew 100x, or 10x, or even after it doubled? Unless you come in playing the long game or forget that you made a certain investment, you’ll sell before you see these “infinite” returns. And, most likely, you’ll sell way before you see multiples of return on your investment. (Or you’ll hold too long after the spike and lose your returns on the back end)

The other side is the exact opposite. After a stock goes down, we’re typically inclined to buy more. Now it’s even cheaper to invest, so we “average down” and pile more money into a falling stock.

So looking at the two extremes – a stellar stock that goes to the moon or a lemon that goes bankrupt – I’d argue that the potential returns are asymmetric, but not in the way you might think. For the typical investor, they’re asymmetric in the negative direction.

This isn’t to offer investing advice, or discourage investment, but it points out a hidden truth. The appearance of risk on the surface isn’t always how it manifests itself in practice.

-Brandon