Ep 9 - On Playing to Win (The Asymmetry of Opportunity)

Hello, friends. This is Tyler Gardner welcoming you to another episode of your Money Guide on the Side, where it is my job to simplify what seems complex, add nuance to what seems simple, and learn from and alongside some of the brightest minds in money, finance, and investing.
So let's get started and get you one step closer to where you need to be. In early 2006, Robert Iger, CEO and executive chairman of the Walt Disney Company, sat across from Steve Jobs in a quiet conference room at Apple's boardroom in Cupertino, California, staring at a lopsided list on a 25-foot-long whiteboard.
They had just spent hours mapping out the potential pros and cons of an acquisition of Pixar by Disney. And the exercise had revealed something pretty stark.
The list of cons far outweighed the pros, at least in length. The risks loomed large.
Fixing Disney animation would take too long. There would be cultural clashes.
The potential price tag and the sheer difficulty of integrating two creative powerhouses. It was, on paper, or on a whiteboard, a deal that should never have happened.
Iger sighed, accepting what the list seemed to make obvious. Well, he said, it was a nice idea, but I don't see how we do this.
Jobs, however, wasn't finished. The luminary that he was, he saw something on this list that Robert didn't.
Or he saw the list itself as something that Robert didn't. He looked at Iger and said something that would change Iger's perspective on business forever.
A few solid pros are more powerful than dozens of cons. The deal, as we now know, went through, and it became one of the most successful acquisitions in corporate history, not only revitalizing Disney's animation division, but setting the stage for the company's creative resurgence.
Most people, however, even some of the greatest business execs throughout history, would have walked away at the sheer sight of that laundry list of potential drawbacks of the acquisition. The losses felt too real, the risks too immediate, and yet jobs understood something that most never do.
We are hardwired to overvalue the potential cons at the expense of potentially realizing major opportunity. We hesitate, we protect, we hedge our bets, and in doing so, we often fail to see the magnitude of what's possible.
But the wealthy, the builders, the creators, the money bosses of the world, they don't play not to lose, they play to win. Now let me be clear, here's what I'm not saying.
I'm not proposing that the wealthy are risk-tolerant thrill seekers who go out of their way to put their jobs, their capital, and their very livelihoods at stake. I'm also not proposing that they take a look at one major opportunity on a whiteboard, juxtaposed with 500 legitimate drawbacks on that same board, and instinctively attach greater value to the one pro presented.
What I am proposing is that the wealthy know something that the rest of us don't. They know how to properly value risk, both on the upside and the downside, and they weight major positives more heavily than dozens of negatives.
Let's take this thinking a step further. Loss aversion, or prospect theory, the cognitive bias presented and articulated by Kahneman and

Versky, suggests that the average human feels about twice as much pain from losing something as they do pleasure from gaining something. For example, you would feel twice as much pain from losing $100 of value in the stock market as you would feel pleasure from gaining that $100.
bucks. I'd like to extend this thinking beyond just the actual feeling of when it happens and suggest that the true issue here is how many people attach this same aversion to the downside before they even know if this loss will take place.
To extend this idea even further, I suggest the average person avoids taking on more risk because they have never

truly seen or experienced the impact of long-term gains, the power of compounding, or the way that business cycles reward those who endure over long enough time horizons. They only see what could go wrong, particularly in the short term, and they have experienced what can go wrong countless times.
So they hold back, paralyzed by fear,

and continue to improperly attach inappropriate value

to both the upside and the downside.

But the most successful people,

the ones who build, invest, and create lasting wealth,

are simply wired differently.

They understand that every great outcome in life

comes with a price, the discomfort of uncertainty. Yeah, it's not just markets that hate uncertainty.
We all hate the fear of the unknown and tend to err on the side of caution, especially if we can justify said caution by writing out a long enough list of cons, aka excuses, not to act. I make lists like this all the time, and I always err on the side of cons, so I do need to take my own advice on this one.
It's time to flip the script. We need to spend far more time understanding the asymmetry of opportunity.
How just one or two massive wins can and often does outweigh dozens of small losses. It's about making that pros and cons list and then weighting the pros list even more heavily to induce action.
Because in the end, the people who build generational wealth aren't ones who made the safest choices. And again, I'm not proposing that the wealthy simply make overly risky choices on a daily basis.
I am suggesting they're making the right ones more frequently because they know how to properly value opportunity when nobody else was willing to view it in the same way. Let's simplify this even further.
Wealth building and business success don't operate on a one-to-one risk-reward scale. Many people assume that big risks equal big rewards, yes, but also that big failures are equally devastating.
No, that's simply not how it works. Failing, for lack of more sophisticated language, can actually be quite fun.
I do it all the time. Once we divorce its reality from any type of long-term personal or business setback, I have come to find great joy in failing at something, anything, on a daily basis, reminding myself that even the act alone of putting something into motion or practice separates you or me from the masses who will never enter the arena in the first place.
I always have to remind myself of that one when I get all the hecklers and all the trolls online. The wealthy understand that one great decision can far outweigh a dozen failures.
The potential upside is disproportionately larger than the downside. Yet we continue to draw pros and cons lists without weighting the items appropriately.
The best investors, entrepreneurs, and creators don't win because they never lose. They win because their wins are so much larger than their losses that failure becomes just a cost of doing business.
Think about this as it pertains to your own life for a moment. How many times do you put yourself in the way of failure each day? How many times do you embrace that failure simply as a cost of doing business and getting to the next rung of the ladder? The most striking proof of this concept in strictly financial terms comes both from venture capital and stock market investing, where a handful of huge wins can cover for dozens, even hundreds of losses.
Let's take venture capital asymmetry. A study by Correlation Ventures found that 65% of venture-backed startups return less than the original investment.
65% less than the original investment. And only about 4% produce 10x returns or more.
But those few outliers, companies like Google, Facebook, Airbnb, NVIDIA, etc., are so successful that they more than make up for all the failures, making venture capital one of the highest returning asset classes despite, or perhaps because of, how few people take on such risk. Or let's consider stock market power law.
In a study of the U.S. stock market, a professor at Arizona State University found that between 1926 and 2016, just 4% of stocks accounted for nearly all the market's net gains.
That really shouldn't surprise any of us. What is surprising, most stocks didn't beat treasury bills, the return on Treasury bills, but the

winners, the Amazons, Apples, and Microsofts, delivered such astronomical returns that they made up for every laggard and loser in the index. Or consider the long-term market effect.
In another study, Nobel Prize-winning economist Eugene Fama found that the longer you stay invested, the more the market rewards you. Since 1928, he found the S&P 500 has had a rolling 20-year periods where it has never lost money.
Never. No matter what year you started investing.
The key was staying in the game long enough for asymmetry of opportunity to work in your favor. So why do more of us not take advantage of this type of asymmetry? Or at least why are we not taught to do so or to think this way? The problem is that the human brain, as we've seen, isn't wired for asymmetry.
We're always looking out for what might harm us or leave us vulnerable. And this fear-based mindset traps people in a cycle of caution, keeping them from making the asymmetric bets that do create wealth.
They may avoid investing in stocks because they fear a market downturn, even though long-term gains far outweigh short-term losses. They may never start that business because they worry about failure, even though they complain about their current jobs and incomes every single day.
And they may hoard cash in savings accounts, justifying this behavior in the name of fiscal responsibility, because some potential imagined loss feels worse than missed opportunity. Yet these are the same people complaining about living paycheck to paycheck.
The wealthy play by different rules. They understand this aversion to loss, and they most likely feel it just as heavily as you and I feel it from time to time, but they don't let it control them.
They structure their decisions around asymmetric opportunities and ask themselves the following questions regardless of the opportunity. One, what's the worst possible outcome? Is it temporary? Is it recoverable? This is where most people exaggerate a potential failure.
Two, what is the best possible outcome? And this is where most people don't exaggerate a potential success nearly enough. Three, does the upside justify the risk? And most people flip that wording and ask if the downside makes it even worth considering.
The wealthy know that one great success can transform everything. They aren't playing to avoid failure.
They're playing for those very outliers. So how can we make this more practical and applicable to our daily lives? Let's start with considering our investment habits.
If you invest consistently, this logic is precisely why I dollar cost average on the second day of each month. Don't ask me why the second day.
I just remember it a little better. Markets fluctuate, but over decades, they have always rewarded those who stay in the game.
The S&P 500 has averaged around 7% annual real returns for nearly a century, despite wars, recessions, crashes, blah, blah, blah. I know you've heard this all before.
But I don't want to have to think about where the markets are or what's going on before I invest, because I know I'll have a reason not to invest. We all always have a reason not to invest.
Number two, this is a big one for me, betting on yourself. This is the big leap of faith that would change countless lives worldwide.
I once heard someone say that we overestimate others and underestimate ourselves. The longer I live, the more truth I find in this statement.
Those who are truly successful aren't the ones who are necessarily geniuses. They're not doing something that you've never been able to comprehend.
Well, some of them might be, but most of them really aren't. They're the ones who show up day in and day out and commit to doing the long-term work that might not pay dividends for a decade.
I get it. How hard would that be to commit to work that doesn't pay dividends for a decade.
We barely make it to our New Year's resolutions for two weeks before National Quitting Day because we don't see good enough results. So it doesn't surprise me that we usually don't commit to something for a decade.
But that's what makes people successful. When that work finally adds up, yes, those are the people that will have done it for a decade, whereas you never even started.
So start the business. Take the opportunity.
Launch the project. Worst case scenario, it doesn't work out.
And you're not back to where you started. That's a fallacy.
Because now you have actually learned from doing. You have the experience.
You have the knowledge. And my guess is you will be addicted to creating and you will never go back to accepting the status quo.
I know I won't. The cost of not trying is almost always far greater than the cost of failing.
Number three, ignore the noise. The wealthy don't obsess over short-term volatility, nor do they listen to the critics.
And spoiler alert, there will always be critics. The more successful you become, the more there will be people telling you to settle down, shut your mouth, and stay in your lane.
Why? Because they're on the sidelines, and they never started in the first place. I just realized that's probably why many parents yell at their kids really loudly during kids games when they're the ones who aren't playing and probably never did play at the same level.
I'm digressing. You're a threat to their very way of being.
You're a threat to their own sense of self. But you're done with that noise.
You now focus only on the long-term upside and nothing more. At the end of the day, the people who build wealth aren't lucky no matter how much you want to believe in that narrative.
Sure, some things have probably gone right for them, but mostly they understand the math of asymmetric opportunity and they act accordingly. So let's pause and look at the math of opportunity together.
This is how the wealthy make better decisions. As we've seen, most people misunderstand risk because they see it as a binary choice.
Safe or risky. Success or failure.
They assume that risk is something to be avoided or at best cautiously managed. The wealthy, however, approach risk with an entirely different framework.
They don't ask, is this risky? Because they know the answer would be, well, yeah, it's risky. Life is risky.
Instead, they ask, does the potential upside justify this risk? Notice how they don't even frame it in terms of a downside, and they call it risk. As they know, it's all risk.
This subtle shift in thinking is what separates those who build wealth from those who simply try to protect what they have. But the problem is that most people never actually calculate the upside properly.
They fixate on what they could lose, the immediate pain of failure, and the perceived security of their current situation. What they fail to recognize is that inaction carries its own hidden risks, ones that also compound over time.
The wealthy, on the other hand, understand that risk is rarely about avoiding losses altogether. It's about structuring decisions so that when they win, they win big.
One of the clearest ways to see this inaction is through the Kelly Criterion, a formula originally developed for gamblers but later adopted by some of the greatest investors in history. The Kelly criterion helps determine the optimal amount to invest when the odds are in your favor.
If you bet too conservatively, you leave money on the table, meaning odds are you would have made more money had you bet more. If you bet too aggressively, however, you risk being wiped out.
The key is striking the right balance, investing enough to take full advantage of an opportunity, but not so much that a single setback can destroy you. In the famous words of Mikey McDermott from Rounders, always leave yourself an out.
This is exactly how Warren Buffett and Charlie Munger, two of the greatest investors and calculators of risk who ever lived, think about their investments. They don't spread themselves thin across every opportunity that comes their way.
Instead, they wait patiently for high probability, high upside bets, and when they find them, then they go in big. Buffett has described this approach as punch card investing, imagining that he only gets 20 major investment decisions in his entire life.

With that in mind, he makes each one count. Pause there for a moment and consider how it applies directly to your life.
If you were forced to make 20 major bets on yourself throughout your life, how would you look at risk-taking differently? I don't know the answer, but my guess is that knowing we would have to say yes eventually, we would work much harder trying to figure out and isolate exactly which bets would be capable of producing the most opportunity. Optimizing these types of bets isn't just about how much to invest.
It's also about structuring where to place those investments. This is where the barbell strategy comes in.
The best way to take risks isn't by

playing it safe, nor by going all in on one big gamble. Instead, it's about creating an intentional

imbalance. Wealthy investors don't waste much time with medium risk strategies that provide

moderate returns, but little potential for exponential upside. They structure their risk

like a barbell. The majority of their capital is indeed invested in stable, time-tested assets, index funds, real estate, cash reserves.
But a small concentrated percentage of their portfolio is placed in high upside asymmetric opportunities. That could be startups, angel investing, or other speculative bets where a small stake can turn into massive wealth.
Interestingly, this is something that I personally don't do very much of. I'm actually very moderate when it comes to my risk tolerance and what I put in.
But even just thinking through this idea with you, it reminds me I should be taking more calculated risks to the upside for big reward so long as I have my core investments in place. Because the key to these calculated risks is having that core in place and again, always leaving ourselves in out.
This is exactly how Jeff Bezos approached the decision to leave his high-paying hedge fund job and start Amazon. In 1994, Bezos was working a high-paying, stable job as a senior vice president at D.E.
Shaw, a prestigious hedge fund. By any conventional measure, he was successful.
I'm putting that in quotes, by the way. But that year, he came across a statistic that changed everything.
The internet, he saw, was growing at 2,300% per year. Now, let's pause here and imagine how we would have responded to this statistic in his exact situation.
We have a high-paying job, we're on an upward trajectory of a career path, and we simply see a growth metric for the internet, when the internet's really not even much of a thing at this point. Most of us would have found hundreds of reasons to stay exactly where we were.
But Bezos had a different idea. With the statistic in mind, he would create an online bookstore.
And it certainly wasn't an easy decision. Leaving his job meant walking away from a lucrative career, guaranteed promotions, and financial security.
Most people in his position would have justified inaction by framing the decisions via the following. What if I fail? What if I lose my stable income? What if it doesn't work and I can never get a job this good again? But notice how every one of those questions is framed negatively.
It is framed to outweigh the downside. Again, we're wired to attach too much weight to these illusions of downside.
Thankfully, Bezos doesn't think like most of us. He understood the asymmetry of opportunity and made his decision using a different framework.
Most people in his position would have focused entirely on what they might lose, an established career, a predictable salary, and the prestige of working on Wall Street. Bezos, however, applied a form of probabilistic thinking that the wealthy

intuitively understand. He didn't just ask, what if I fail? Instead, he asked, what if I never try?

Or more opportunistically, what if I succeed? He later described his thought process as a regret

minimization framework. Imagining himself at 80 years old looking back on his life, the pain of regret he realized would far outweigh the pain of temporary failure.
That's the right way to calculate risk. Instead of focusing only on the downside, he looked at the potential asymmetry of the decision.
The worst case scenario was the business fails and he has to get another job. Maybe he's at a few years of salary, but not

only is he still employable, but he now has the experience and knowledge that he otherwise never would have had. Best case scenario, the business works and he builds something that could be worth billions.
Okay, well maybe he wasn't quite thinking that big from day one, but you get what I'm saying. because even if the odds of Amazon's success were only 10%, the upside was so enormous that it easily justified this risk.
And we all know what happened next. Bezos quit his job, started Amazon out of his garage.
But what many might not know is that for years, he lost money. In fact, Amazon didn't turn a profit for nearly a decade.
Not only did Bezos have to make the initial decision to take a leap of faith based on the potential upside, but he had to recommit to that decision for a decade while he continued to lose money with the company. Most people would have quit.
I probably would have quit. But Bezos understood the asymmetrical relationship of risk and reward.
If he wins, he'll win big. Today, Amazon's worth over $1.5 trillion, and Bezos has on and off been the richest man in the world.
No, I am not suggesting that we all quit our jobs today based on a growth metric we find on the, ironically, internet, or maybe I am. But what I do know I'm suggesting is that we internalize quickly how Bezos made the decision and why Bezos made the decision and use that framework to shed light on why we choose to act or not to act in our own lives moving forward.
Because the same logic that Bezos used, interestingly, this regret minimization framework is similar in nature to one that we use in finance all the time, Monte Carlo simulations, a tool that hedge funds and financial planners use to model thousands of possible future scenarios based on present decisions. What these simulations reveal is something deeply counterintuitive.
Playing it safe can actually be the riskiest move of all. Many people assume that if they keep their money in cash or bonds, especially as they get into retirement, they're somehow protecting themselves from loss.
But when you run a Monte Carlo simulation of a retirement portfolio, you find that the people who take on too little risk often have a higher probability of running out of money than those who take on additional risk through equity exposure or alternative investments. Over decades, the risk of not investing enough or in risky enough asset classes can be just as damaging as investing poorly.
And yet, we still cling to this illusion of security. This is partially due to a fundamental misunderstanding of risk versus uncertainty, a distinction made famous by economist Frank Knight.
Risk is something we can actually calculate and quantify, like the historical returns of the stock market. Uncertainty, on the other hand, is something that cannot be measured, like the odds of a brand new industry succeeding, or the odds that the acquisition of Pixar by Disney will ultimately be the right choice in the face of dozens of cons staring two business icons in the face.
Most people avoid uncertainty because it feels, well, unknowable. The unknown is terrifying.
I'm still scared of the dark, honestly. The wealthy, however, recognize that the biggest opportunities often exist in areas of high uncertainty.
If something is too obvious and too safe, there's no outsized reward left to capture because too many people will have already made that relatively conservative bet. Elon Musk is a perfect example of this.
When he started Tesla, virtually every expert believed an electric car company was a guaranteed failure. It wasn't just risky, it was highly uncertain.
The odds of success were unknowable, and most rational investors wanted nothing to do with the company. But Musk understood something that most people don't.
Uncertainty is exactly where asymmetric opportunities exist. Most people feared the downside of Tesla failing, which is understandable, but Musk saw the magnitude of what could happen if it succeeded.
Now, it's worth returning to where we began. Not all risks are worth taking.
And most people, even those who claim to be risk tolerant, spend their lives potentially making the wrong kinds of bets and taking the wrong kinds of risks. They avoid investing in the stock market despite its century-long track record of compounding, but they spend money on lottery tickets, which might have a 1 in 292 million chance of paying off.
This is what behavioral economists call the lottery ticket fallacy, a tendency for people to chase long-shot, low-probability gains instead of focusing on compounding opportunities that are actually within their reach. The wealthy understand that small, calculated risks compound into unstoppable advantages over time.
This is known as the Matthew Effect, a principle that states that the rich get richer not just because they have money, but because they take early, intelligent risks that set them up for exponential success later on. A person who invests $10,000 in their 20s may not feel like they're making much progress, but over decades, that money snowballs.
The same is true for entrepreneurship. The first business is going to be the hardest.
But once you succeed or fail, you gain capital or connections and knowledge that make the second and third ventures much easier. And again, you have experience now.
This is why the rich will, in fact, continue to get richer. They understand that taking on a risk is necessary, that appropriately valuing risk is essential to any decision, and they know that the greatest risk isn't in taking the wrong chance.
It's a never taking one at all. Your takeaway for today.
I want you to adopt the following decision-making framework. Next time you're presented with a decision, ask yourself the following.
Number one, what is

the worst that could happen? Is it temporary or is it recoverable? Number two, what is the best possible outcome? In other words, how big is the upside? Let your imagination go with this one and actually try to quantify how big this upside is. And then finally, the decision metric, number three, is the upside large enough to justify the risk of this downside.
And by utilizing this framework, you will in fact be taking one step closer to where you need to be. Thanks for tuning in to your money guide on the side.
If you enjoyed today's episode, be sure to visit my website at tylergardner.com for even more helpful resources and insights. And if you're interested in receiving some quick and actionable guidance each week, don't forget to sign up for my weekly newsletter where each Sunday I share three actionable financial ideas to help you take control of your money and investments.
You can find the signup link on my website, tylergardner.com, or on any of my socials at social cap official. Until next time, I'm Tyler

Gardner, your money guide on the side, and I truly hope this episode got you one step closer to where

you need to be.