I've been reading a lot about investing lately - particularly value investing, a la Warren Buffett. As a result of my reading, I've come to realize there are three characteristics of an ideal investment that I wanted to share. In my view, if a potential investment checks off these three boxes, then it should definitely be worth considering.
The first characteristic is that the opportunity should be a safe bet. Another term might be a protected bet. What this means is that if the investment were to fail, you would either be protected (e.g. insured) or you would only lose a marginal amount of money. For example, if someone were to challenge you to race them where if you lost, you would only lose $1, when you have a healthy amount of money in your bank account, that would be a safe bet.
Obviously, safe bets are relative to the individual. What might be a safe bet for Bill Gates might be extremely risky or even impossible for me. So it depends on your own bankroll.
The second characteristic of an ideal investment is that the opportunity should be an asymmetric bet. This means that the upside greatly outweighs the downside. A simple example would be if someone were to challenge you to race them where if you lost, you'd only lose $1, but if you won, you'd win $10. The upside outweighs the downside by ten-fold.
Asymmetric bets are actually very common. Lottery tickets - where for a $1, $2, or $5 ticket, you could win one-hundred to one-million fold - are asymmetric bets. Indeed, the appeal of gambling is that you could bet a certain amount in the hopes of gaining multiples of what you've bet. This is why it's important that you ensure first that the opportunity is a safe bet before determining it is asymmetric.
The third characteristic of an ideal investment is that the opportunity should be a sure bet. What this means is that you have strong reason to believe that the opportunity can pan out the way you'd like. This strong reason can come from evidence, from research, or from analogy, but it needs to be a clear defense or support for your belief.
An example of a sure bet would be if the opponent who is challenging you to the race is clearly less athletic or fit than you are. You have strong reason to believe that you will easily win.
Taking these characteristics together, an ideal investment is one in which 1) you are protected or safe if you lose, 2) you can stand to win a lot more (multiples) than what you'd lose, and 3) you know you have a high probability of winning.
Obviously these kinds of investments are difficult to come by, but they do occur. Your role as an investor is to put yourself in a position to be able to easily recognize when such an investment comes your way. This is done by choosing a field of study or market in which you are interested and into which you are willing to delve deep to learn. The core of investing, from what I've learned, is about learning.