3 Asymmetrical Risk Investments You Must Make Now
Especially if you’re young and have decades until retirement, there are some investments where the risk-to-reward ratio is so skewed that it could be financially irresponsible not to at least make a small investment. This is called asymmetric risk, where the worst scenario is that you lose 100% of the money you invested, but the potential money you can gain is limitless. Similar to risking $1,000 for hundreds of thousands of dollars.
Think about cherry picked examples such as Amazon, Google, and Apple. Twenty or more years ago when the internet was in its infancy, the future of the internet was not certain and there was skepticism regarding the technology. People doubted the safety of buying items online, and in the early days, many considered the technology a fad or a plaything for academia. Newspapers published criticisms in the mid 1990s that an online database could never replace your daily newspaper or in-person learning.
However, we are all aware of the ultimate success and adoption of the internet and smartphones over the past few decades. Investing into Apple, Amazon, Netflix, or Google twenty or so years ago turned a few thousand dollars into hundreds of thousands or millions of dollars.
To have created life-changing, generational wealth over the past decade or two, you only needed to invest with the conviction that the internet would become faster, more robust, and integral to our daily lives. That conviction was especially tested during the dot.com bubble.
Similar to the dot.com bubble and the 2008 financial crisis, we are currently in a recession where some young technologies and industries that someday will be integral to our daily lives and provide life changing wealth to early investors are trading at discounts that we have not seen in years.
Almost everything good in your life will happen as a result of taking a risk to get it. In life, you should take the risk of becoming incredibly wealthy.
If you are under the age of 35, perhaps 45, then the average person will most likely only have only a few big swings as an investor for long term, astronomical gains compared to the average market return.
There will always be financial opportunities in your life, and someone will historically experience 3-4 severe recessions during their working years. However, likely, there will only be one, maybe two, major recessions in your early career where you can invest into industries with limitless potential at rock bottom valuations and have a 20-30 year time horizon for these industries to mature before retirement. Typically, the closer one is to retirement, the more conservative they should be.
When the potential reward of an investment outweighs the risk, then sometimes you should take that risk. When the potential reward of an investment is boundless, then despite the risk, it is unwise not to invest at least small amounts in a diversified portfolio; it may take only one of these successful investments to secure your financial future.
Below are some industries and technologies that are asymmetric risks you need to take.
When your anxiety of losing money in the short-term gets in the way of making more in the future, it becomes a bit of a self-fulfilling prophecy. That is exactly why buying stocks of marijuana companies right now should prove to be a genius move while the entire industry is beaten-down and oversold. This seems to be one of the most overlooked growth sectors.
Many of these companies’ stock prices are down 90% or more from their all-time highs in 2021. To put it into perspective, the average Nasdaq price-to-sales ratio is 5.06 at the time of this writing, but even the most promising companies in the cannabis sector are only trading at price-to-sale ratios of between 1 to 3 and are continuing to fall. This means that shares of cannabis stocks are incredibly less expensive per share of revenue than early 2021 and prior when some companies were trading at price-to-sales ratios of over 30-40.
The whole marijuana industry is priced as though the sector has no future, but the trend of the past decade or so shows that there will be a cannabis boom in the near future, especially in the United States.
And make no mistake–it is coming.
In 2012, Washington and Colorado became the first states to legalize recreational marijuana use, and the legalization trend has not slowed since. Recreational cannabis legalization has since swept across North America with 18 states and Washington D.C. legalizing recreational use in the past few years. More may legalize following this 2022 mid-term elections.
Nationwide, federal recreational legalization came to Canada in October 2018. In the United States, the Biden administration announced the intent in October 2022 to pardon federal convictions for marijuana possession. Biden’s administration also showed interest in rescheduling marijuana as a schedule 1 drug, to a less severe classification given the lesser scale of marijuana’s social and health impacts. These are huge steps forward towards U.S. federal decriminalization and perhaps even outright federal legalization.
Given how much progress in marijuana legalization has occurred in the past decade, it seems very likely in the next ten years that recreational marijuana will be legalized in almost every state in the United States and possibly even on the Federal level. This seems especially likely as states collect more tax revenue from recreational sales and the negative social sentiment towards the drug wanes.
This would skyrocket marijuana sales 10 times in only a matter of years. The current cannabis industry was valued at approximately $10 billion in 2021, but estimates show that industry could grow to $97 billion by 2026. By 2030 and beyond, the industry could grow into the hundreds of billions. This is not surprising when we consider how much Americans spend on tobacco and alcohol each year.
There are some cannabis companies that may dominate the industry and control market share as the industry explodes from the marijuana revolution. Companies such as Tilray Brands (TLRY), Curaleaf Holdings (CURLF), Canopy Growth (CGC), and Green Thumb Industries (GTBIF) may be positioned to deliver massive returns over the next decade, especially if one is buying at these current, suppressed valuations.
Arguably, the greatest cannabis investment opportunity is in the United States considering it’s the largest market in the world and the nascency of the U.S. cannabis industry. The growth potential seems untapped for marijuana companies that operate in the United States, or will someday as legalization progresses. For those who do not feel comfortable picking individual stocks in this sector, the Advisorshares Pure US Cannabis ETF (MSOS) can provide broad, diversified exposure to the U.S. marijuana market.
GENOMICS AND CRISPR GENE EDITING
Genomics is a branch of biotechnology that studies the complete set of DNA, or the genome. By understanding and deciphering the genome, we get closer to comprehending how genes interact with each other and the environment to better diagnose and prevent diseases such as diabetes, cancer, heart disease, etc.
CRISPR is the leading gene editing technology to edit and tweak DNA, or turn genes on and off. CRISPR and DNA sequencing have the potential to treat and cure the most prevalent genetic diseases that seemed impossible not so long ago.
The Human genome project, started in 1990 and completed in 2003, was humanity’s ground breaking feat of determining the nucleic acid order, or sequencing, of over 90% of the human genome. While it would take time for scientists to understand what the DNA combinations meant or how it differs from person to person, it allowed them to see everything clearly and opened new doors in genome biology.
The Human Genome Project and first reference human genome sequence took 13 years and cost $3 billion dollars. As the technology improved and became cheaper, that cost dropped to likely $20-25 million for an individual’s genome in 2006. Today, the same procedure costs well under $1,000 to sequence your individual genome, which can be done in a matter of hours. The point is that the improvement in the technology and the cost declines are exponential. At this rate, it is not hard to imagine genome sequencing tests being performed in standard doctors' offices for less than $100 covered by most health insurances in the near future.
We all know someone in our lives afflicted by diseases such as cancer or Alzheimer's. Just the affordable technology to test someone for DNA abnormalities for early detection and diagnosis would be huge in increasing life expectancy.
Enhanced by artificial intelligence and machine learning, CRISPR and gene editing technologies could someday cut and alter DNA to cure cancers, HIV, high cholesterol, sickle cell disease, or anything that DNA influences. The total addressable market for this technology is every human on planet earth.
CRISPR technology is only about a decade old, but already the number of FDA approved clinical trials for many diseases are underway. We will soon be on the cusp of FDA approved cures for illnesses that kill millions each year.
The technology is nearly ready and will soon redefine humanity.
The technology won’t just stop with humans. The DNA of every plant or animal can be altered for more sustainable crops or healthier livestock.
The issue with investing in this industry is that you basically need a Ph.D or advanced degree to understand the competitive advantages of companies or the technology on a technical level. The average person will not have the knowledge to wrap their heads around which company is closer to a breakthrough or the chances of a treatment receiving FDA approval. The safest option for most investors would be to buy shares of exchange traded funds such as the Ark Genomic Revolution ETF (ARKG) or the Global X Genomic and Biotechnology ETF (GNOM). These provide the best chance to gain exposure to the future industry leaders.
However, some of the most prominent genomic companies include Crispr Therapeutics (CRSP), Intellia Therapeutics (NTLA), or Beam Therapeutics (BEAM). Whichever gene editing company can be the first to FDA approvals and patents could nearly 100x in stock price from current market caps in this recession.
Gene editing and genomics is a pivotal step in human history capable of altering lifespans. You cannot risk not investing in its potential.
Cryptocurrency isn’t an obscure opportunity; cryptos like bitcoin and ethereum are household names at this point. But it had to make this list because cryptocurrency may just be the biggest asymmetric bet of this generation or all time.
There are many people who are skeptical of the technology or have conviction that there is no intrinsic value. This is not so much an argument of the likelihood of cryptocurrency’s success and increased adoption. Whether or not you’re a believer, the truth is that if cryptocurrency accomplishes its mission or intended purpose, then some cryptocurrencies could be the most valuable assets in the world and set you up for financial freedom in the next decade.
Bitcoin has already turned countless average people into millionaires seemingly overnight. In fact, Bitcoin set the record for the fastest asset ever to reach one trillion dollars in market capitalization. For comparison, it took Apple 38 years to reach a one trillion in market cap, Microsoft 33 years, Amazon 23 years, and Google 16 years. It only took Bitcoin 12 years. For those who were courageous enough to buy even a few dollars of Bitcoin when the cost per Bitcoin was under $1 in 2011, they became multi millionaires a decade later in 2021 with over a 10 million percent return on their investment adjusted for inflation.
Most people think of Bitcoin as magic internet money; however, it is actually fundamentally the greatest currency humans have ever created.
Bitcoin satisfies all the qualities of reliable money: It is scarce in its 21 million coin limit. It is fungible as a Bitcoin can be subdivided into a hundred millionth of a Bitcoin known as a satoshi for small purchases. It is recognizable as it is becoming known and accepted worldwide. It is substitutable in the sense that a Bitcoin is a Bitcoin and is identical no matter where you are in the world. Finally, it is the most portable in the sense that it is digital and is following the trend of digital payments of the last decade as opposed to physical gold, silver, or cash.
The Bitcoin network is also nearly impossible to hack as to do so would require someone to gain control of tens or hundreds of thousands of private, peer-to-peer nodes at the same time.
Lastly, the Bitcoin network is a public ledger where anyone can see the underlying Bitcoin source code and all the Bitcoin transactions since its creation, although one can still use the network anonymously.
While it is not perfect, the security and transparency of Bitcoin makes it our best decentralized, trustless solution to inflationary fiat currency as seen in recent times. This is more crucial in developing countries rife with corrupt governments and weak financial institutions. The use case for something like Bitcoin is greater in the developing world than the United States, and most likely these are the regions where Bitcoin adoption may be greater in the coming years.
However, the greatest returns for Bitcoin as an investment may be behind us.
The market capitalization for Bitcoin is $354 billion at the time of this writing. Bitcoin transactions are slow. While Bitcoin may be increasingly used in day-to-day transactions with the lightning network, the greatest use case and bull thesis for the cryptocurrency at the moment is a store of value similar to digital gold. The market cap of gold today is approximately $11 trillion. We may expect Bitcoin’s market cap to approach the market cap of gold under the most optimistic, almost unbelievable scenarios which would mean 31 times the current Bitcoin price. Previous gains in Bitcoin dwarfs this number; however, this would still be an incredible, life-altering investment, although this may seem too hopeful.
Due to this, we need to look further for even more asymmetric opportunities in cryptocurrency
Ethereum is also a peer-to-peer network similar to Bitcoin in its use of blockchain technology and using “eth” as the payment or currency in its network.
Some of the true value in Ethereum lies in its superior smart contract capabilities.
Smart contracts are self-executing contracts within the Ethereum network, where the terms of the contract or agreement are embedded directly into the code of the smart contract.
This code controls the execution of the contract on the decentralized blockchain network, and these transactions are trackable and irreversible.
These smart contracts allow trusted agreements and transactions to be carried out without the need of a central authority, external enforcement, or legal system.
For example, a farmer could use a crop insurance smart contract which would automatically pay the farmer in the case of drought, excessive rain, or hail without the arbitrary discretion of a traditional insurance company.
People could request loans anonymously through an Ethereum smart contract that are paid out based on public, predetermined requirements to quality where one could not be rejected based on ethnicity or financial status.
In an election, votes could be permanently stored publicly on the Ethereum blockchain to remove any doubt that your vote was not counted or falsified.
The use cases go on and on. Because of the endless possibilities to disrupt the traditional financial system as well as decentralize nearly every aspect of our lives, it seems as though smart contracts may just be the biggest moonshot and asymmetrical opportunity that you can invest in today or of all cryptocurrency due to the optionality.
However, Ethereum suffers from the same issue as Bitcoin, an already large market cap. Its market cap is $163 billion at the time of writing.
Ethereum was the first decentralized, smart contract network and has the first mover advantage. This is why the platform has the biggest ecosystem compared to its peers with the most transactions and integrated smart contracts. There are no limits to how high Ethereum could appreciate in value if the ecosystem grows and remains the leading smart contract blockchain.
However, there are competitors in the space on the verge of dethroning Ethereum from the number one spot.
There are blockchains that are already implementing massive upgrades to possibly perform much faster than Ethereum with lower transaction fees while being more energy efficient.
It took Ethereum years and many delays to transition from proof of work to proof of stake and lay the foundation for faster Ethereum transactions and a 99% reduction in energy consumption someday in the future. However, even Vitalik Buterin, an Ethereum co-founder, said that after “the merge,” he only views Ethereum as being 55% complete.
Most of Ethereum's major competitors have already been implementing the proof of stake system for a while now, long before Ethereum. Many believe that some of these competitors are further along in development or will be soon.
For instance, another smart contract blockchain, Cardano, is approaching its “Hydra” upgrade, which will someday allow up to one million transactions per second with nearly zero transaction fees. The Cardano foundation uses a unique peer review system to make sure that all the code developed for the platform is of high quality compared to Ethereum’s less scientific approach.
Solana is another smart contract blockchain that was proof of stake long before Ethereum and can process a record of 65,000 transactions per second. This is compared to Ethereum’s 12 to 13 transaction per second speed prior to Ethereum’s recent “merge.”
Algorand is considered the fastest smart contract cryptocurrency today.
Due to the crypto bear market and macroeconomic conditions, the top layer 1 smart contract blockchains such as Cardano, Solana, Algorand, Avalanche, and Polkadot are currently trading at around $13, $7, $2, $4, and $7 billion market caps, respectively. If there are any further delays in Ethereum’s development, if Ethereum falters, or fails to deliver on expectations, then any of these rivals could claim the top spot eventually. That would mean a 12-81 fold increase in price for these competitors to reach Ethereum’s $163 billion current market cap. From there, if cryptocurrency’s future is bright, then market capitalizations in the trillions are not out of the question.
To be clear, there is no guarantee that any layer 1 smart contract blockchain can overcome Ethereum’s dominance. In fact, there’s a possibility that Bitcoin, Ethereum, and the entire cryptocurrency industry fail and fade into insignificance.
The point is that there is a non-zero chance that cryptocurrency succeeds and becomes fundamental in our everyday lives. In the case that blockchain technology becomes increasingly more relevant to our global economy in the future, the biggest risk today is not making a small investment you can afford to lose despite all uncertainty.