Today’s memo, “Asymmetric Bets” or “How I Learned to Stop Worrying and Love My Bombs” is a follow up to yesterday’s memo about when to sell a stock.

Today I answer the question of why I am so sanguine with losing 90% of the money I invested in a bet on GoPro back in 2014. The answer has to do with 1) asymmetric bets and 2) human behavior.

First, asymmetric bets: How much money can you possibly lose when you invest in a stock? Answer: the company could go out of business and you could lose 100% of your money. How much money can you possibly gain when you invest in a stock? Technically, there is no limit on how much a company’s share price could appreciate. (A bit of advice: seek out asymmetric bets in your life and put some skin in the game.)

Second, human behavior: the natural reaction to a falling stock is to guard against further loss by selling. But if you can fight that urge to sell when things seem to be going wrong, you give yourself the opportunity to win an asymmetric bet. If you sell, you’re out of the game, and if you’re not playing, you can’t win.

Tesla was in a similar position in summer 2019 that GoPro was in late 2015. And by similar, all I mean is that the news has turned against them, their share price had fallen, and the future held many questions. Normal human behavior would lead you to sell in both cases. But staying invested keeps you in the arena of asymmetric bets. GoPro fell 90%. Tesla multiplied 6 times over.

I’m happy I held onto my GoPro shares in 2015 because that exact same behavior is what led me to hold on to my Tesla shares in 2019.

I wish I could tell you that I knew GoPro was going to keep tanking and that Tesla was going to skyrocket. But I didn’t know, and I still don’t know. I still own all my shares of both. My “Thoughts on When to Sell” contain more questions than answers, and so instead I try and own quality companies for the long term, riding out the ups and downs, and when faced with uncertainty, making the bet with asymmetric outcomes.