Two asymmetric opportunities

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It’s difficult to make predictions, especially about the future. Like many investors, Gopi Karunakaran from Ardea Investment Management once thought that investing meant having high levels of confidence about the future. However, he very quickly learned the truth; “uncertainty is always there, you can’t get away from it.”

So, how do great investors make good decisions if they’re no more certain of the future than the rest of us? Karunakaran says the key is finding asymmetric opportunities. He explains these as, “situations where the possibility of loss is small relative to the possibility of gain.” Typically, these are due to a market inefficiency of some kind.

For the full story, including two current examples of asymmetric opportunities, watch the short video below.

Key points:

  • Uncertainty is a fact of life, you must learn to work with it
  • Thinking probabilistically considering what the market has already priced in can help to identify asymmetric opportunities
  • Asymmetric opportunities can arise from structural issues such as regulation, or due to extremes of sentiment
  • Asymmetric bets can help to limit downside, while also maximising upside.

Ardea Investment Management is a specialist fixed income investment boutique with a focus on delivering consistent alpha to clients through an investment process supported by a highly intuitive risk system. For further information please click here


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David Yabsley

Excellent

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