Gold and silver are expressing very different forms of asymmetry. Gold reflects slow-moving structural convexity tied to policy risk, while silver’s explosive moves are driven by liquidity squeezes and regulatory uncertainty. The opportunity isn’t prediction — it’s understanding the risk geometry. Read it here: Asymmetry vs. Velocity in Gold and Silver
Following up on Why Bitcoin Itself Lacks Asymmetric Risk/Reward, we go into more detail with an example in Engineering Bitcoin into an Asymmetric Risk/Reward Investment and Managing Cryptocurrency Risk
Does the cryptocurrency Bitcoin offer an asymmetric risk/reward payoff? Find out: Why Bitcoin Itself Lacks Asymmetric Risk/Reward
That question isn’t being asked because of headlines or rhetoric. It’s being asked because something more structural is changing beneath the surface.
History shows that societies don’t move directly from polarization to violence. They move through a late-cycle phase where internal conflict escalates, trust erodes, and institutions lose their ability to absorb disagreement without breaking something important.
That phase doesn’t guarantee collapse.
But it does change the geometry of risk.
When internal conflict rises, outcomes stop being symmetrical. Stability becomes conditional. Small shocks produce outsized reactions. And assumptions built during long periods of calm begin to fail.
The real risk isn’t predicting the worst-case scenario.
It’s remaining structurally exposed as the distribution of outcomes widens.
Read it here: Are We Entering a Civil War? Or Entering the Phase That Precedes It?
In asymmetric investing, the difference between an investor and a trader is misunderstood. Read about it in Investors Own Capital. We Actively Manage Exposure
The Art of Asymmetric Investing: When Imbalance Beats Balance. Most investors think the goal is balance. Balanced portfolios. Balanced risk. Balanced returns. What business owner wants to balance their profit and loss? What investor wants to balance their risk and reward? Read it here: The Art of Asymmetric Investing Isn’t Balance — It’s Survival
Many strategies look asymmetric—until volatility exposes what was hidden. True asymmetry starts with defined risk and leaves upside open. The difference is geometry, not storytelling. Read: True Asymmetry vs. False Asymmetry in Investment Management
Having traded options for thirty years, I’ve seen the same pattern repeat across decades and market regimes: what looks like consistency is often just risk being deferred. A strategy can look disciplined, consistent, and “low risk” right up until the moment it isn’t. The Captain Condor $50 million collapse wasn’t caused by a market crash or bad luck — it was caused by a hidden asymmetry in the risk itself. This observation explains how smooth returns, high win rates, and “defined risk” trades can still produce catastrophic outcomes when portfolio risk is left undefined — and why true asymmetry always starts with survival, not consistency. Read the observation: Captain Condor Blowup and the Illusion of Asymmetry
Nassim Nicholas Taleb argues that most so-called “alpha” isn’t real because it ignores the most important variable in investing: survival through time. Strategies that look impressive based on historical averages often conceal a small probability of catastrophic loss. For investors compounding wealth over decades—especially after a liquidity event like selling a business or retirement—those rare losses matter far more than smooth long-term averages. True alpha must endure volatility, uncertainty, and adverse regimes without risking permanent capital impairment.
Read the full article on the Shell Capital blog:
Why Nassim Nicholas Taleb Says Most “Alpha” Isn’t Real
https://shell-capital.com/asymmetry-observations/why-nassim-nicholas-taleb-says-most-alpha-isnt-real
This observation was originally published at Shell Capital’s ASYMMETRY® Observations.
Markets aren’t driven by averages
Most investment frameworks still assume markets are driven by rational actors optimizing long-term averages.
They aren’t.
Markets are driven by how humans perceive gains, losses, and risk in real time—and that perception is systematically distorted under pressure.
This isn’t speculation. It’s formalized in Prospect Theory, the Nobel Prize-winning framework developed by Daniel Kahneman and Amos Tversky that explains how people actually behave when real money is on the line.
The asymmetry is structural
Prospect Theory demonstrates investors are:
This creates a non-linear value function centered around a reference point—usually “break-even.”
In markets, that behavioral asymmetry shows up as:
Averages don’t explain that. Behavior does.
Where wealth gets destroyed
Here’s the problem most investors don’t see coming:
The gap between how portfolios are constructed and how humans actually behave under pressure is where wealth gets destroyed.
Not by market risk. By behavioral risk.
Modern Portfolio Theory assumes you’ll hold through any drawdown. Prospect Theory explains why you won’t—and why trying to force yourself to will likely make things worse.
Loss aversion intensifies as drawdowns deepen. Investors lock in gains too early when winning and hold losses too long trying to “get back to even.” The discipline you think you have evaporates precisely when you need it most.
That’s not a character flaw. It’s human wiring.
From behavior to process
Prospect Theory doesn’t predict what markets will do next. It explains how people react once markets move.
That distinction is critical.
At Shell Capital, we design systems around that reality:
We don’t optimize for theoretical means. We manage the path—how returns are experienced over time.
Because the path is what determines whether you stay invested or tap out.
The practical reality
You can’t behavior-modify your way out of loss aversion. You can only design around it.
Markets aren’t driven by averages—they’re driven by how humans perceive gains, losses, and risk under pressure.
Our systems are built to harness that asymmetry while protecting against the behavioral traps that destroy even well-intended investment plans.
That’s where disciplined risk management begins.
Does your portfolio account for behavioral risk?
At best, portfolios may be stress-tested for market scenarios—2008, COVID, rate shocks.
Almost none are stress-tested for the investor.
One of the many parts of ASYMMETRY® is a behavioral risk diagnostic that maps allocations against asymmetries that emerge under pressure:
If you want to see how your portfolio holds up under behavioral stress, contact us and we’ll send you the framework and walk you through how we apply it to your current holdings.
—Mike Shell President & Chief Investment Officer Shell Capital Management, LLC
This observation was originally published at Shell Capital’s ASYMMETRY® Observations.
The S&P 500 dividend yield has dropped to 1.25%, one of the lowest readings in more than two decades. That’s 31% below its long-term average of 1.81% and just a hair above its historical low of 1.12%. Read it here: The S&P 500 Dividend Yield Has Collapsed—Here’s Why It Matters for Asymmetric Risk/Reward and Asymmetric Returns
We pursue what we refer to as “drawdown control” through individual position risk management, portfolio heat limits, and portfolio hedging for risk mitigation.
Compounding efficiency isn’t about how much we make—it’s about how much we keep compounding.
Read about it: Drawdown Control is Essential for Compounding Efficiency
Read it here: Drawdowns from Market Losses Work Geometrically Against You
The VIX futures curve continues to send a clear message: volatility remains elevated, and the market still expects it to fade—but not just yet.
Read it here: VIX Futures Still in Backwardation: What This Shift Tells Us Now
If the link doesn’t open from the email, click the title.
To compound capital efficiently over time, downside risk must be actively mitigated. The key to long-term wealth creation isn’t just capturing upside—it’s protecting capital through asymmetric risk/reward positioning and strict portfolio risk exposure limits.
Read it here: The Case for Limiting Drawdowns Through Active Risk Management and Hedging: The Math Behind Efficient Compounding
The latest internal market data shows a broad collapse in demand and increase in selling pressure across all major S&P 500 sectors.
The percentage of stocks trading above key moving averages—from 5-day to 200-day—has declined sharply. While short-term trend damage is now widespread, we’re beginning to see conditions where countertrend setups with convexity potential may form.
It’s a signal to prepare for an eventual countertrend.
Read it here: Market Breadth Collapse Intensifies: Monitoring for Countertrend Setups with Asymmetric Risk/Reward
Sector dispersion is a gift to the asymmetric investor. When sectors diverge this sharply in trend, volatility, and valuation, the environment rewards those who are willing to rotate tactically and structure trades to capture exponential upside while controlling downside risk. We may use this data to identify setups with capped downside and high upside optionality—hallmarks of true asymmetry.
Read about it here: Asymmetry in Sector Dispersion: Q1 2025 U.S. Sector Dashboard Insights
Read it here: Asymmetry in Action: Sector Dispersion Widens in March 2025 Industry Dashboard
You wouldn’t know it from watching the VIX index alone, but something interesting is happening beneath the surface. The VIX futures curve — the structure that really drives volatility-linked products like VXX, VIXY, and UVXY — is showing signs of indecision. Here’s what it means for asymmetric hedging.
Read it here: The Volatility Mullet: What the VIX Curve Is Quietly Telling Us Today
The stock market is a constant battle between buying pressure and selling pressure, and recently, that battle has shifted in a meaningful way. After a strong rally earlier in the year, we’ve now seen a notable change in the risk/reward asymmetry. Markets don’t move in a straight line, and shifts in trend strength often signal the potential for new opportunities—or new risks. Read more: The Stock Market Risk/Reward Asymmetry Has Shifted
Read it here: Ray Dalio and Elon Musk Are Right—And Here’s Why
Read it: On Bubble Watch: A Critical Look at Market Cycles for Asymmetric Investing and Trading
The ICE BofA US High Yield Index Option-Adjusted Spread (OAS) is a key measure of risk sentiment in the credit markets. Historically, extreme levels in credit spreads have preceded major shifts in market conditions, often serving as a leading indicator for broader financial stress or recovery.
Today, as we find ourselves in one of the tightest credit spread environments in decades, it’s worth asking: Are investors underpricing risk, and does it present an asymmetric opportunity?
Find out here: Are Credit Spreads Signaling Asymmetric Risk?
For more than two decades, I’ve required a mathematical basis to maintain confidence in my decisions, especially during challenging periods inherent in every investment or trading strategy.
Read it at A Mathematical Basis for Believing in Asymmetric Trading Systems
See the observation here: The Trend Remains Up for the Stock Market, But Risk is Increasing as the Trend is Weakening
Many investors believe they are pursuing asymmetric opportunities when they buy stocks they think are undervalued or have more upside than downside.
But true asymmetry isn’t just about perceived valuation gaps—it’s about structuring risk in a way that limits the downside while allowing for uncapped or asymmetric upside.
The reality is, just buying a stock you think is undervalued doesn’t create asymmetry.
It may offer potential upside, but if there’s no predefined risk management, the downside remains open-ended.
Asymmetry isn’t about hoping you’re right—it’s about ensuring that even if you’re wrong, the damage is controlled, and if you’re right, the reward is exponentially greater.
Many investors assume they have an asymmetric opportunity when they buy a stock trading below what they believe to be its intrinsic value.
The thinking goes:
The problem?
Cheap stocks can get cheaper, and markets don’t always correct “mispricings” in a timely manner—if ever.
Many deep-value stocks stay undervalued for years, and some go to zero.
Buying something just because it “should” go up does nothing to limit risk.
A true asymmetric investment isn’t just about identifying opportunities with more upside than downside—it’s about structuring the position to ensure a capped downside and disproportionate upside.
There are several ways we do this:
The key distinction is that just buying something undervalued is based on hope, while structuring asymmetric trades is about controlling risk.
Hope is not a strategy—a predefined downside is.
If you enter a trade where:
1. Downside is capped (through predefined exits or contractual limits like options).
2. Upside is uncapped or exponentially larger (through compounding, leverage, or event-driven catalysts).
3. The approach is repeatable (not relying on luck but a systematic framework).
Then you are truly executing an asymmetric strategy.
But the process of creating asymmetric investment returns doesn’t stop there; it continues at the portfolio level.
Simply believing a stock has more upside than downside does not create asymmetric risk/reward—it’s just a market opinion. Asymmetry must be structured in advance, not assumed after the fact.
For investors who seek true asymmetric payoffs, the focus shouldn’t just be on finding “cheap” stocks but on structuring trades where the worst-case scenario is predefined and limited while the best-case scenario remains disproportionately large.
That’s the difference between hoping for a high return and engineering an asymmetric edge like we do.
Click to read: The Technology Sector Gets More Oversold
Mike Shell shares his latest: Stock Market Sentiment Has Reached an Extreme
Click here to read this post.
Volatility in general, and VIX in particular, is widely thought to influence hedge fund returns. This article shows that not only is VIX negatively correlated to hedge fund returns, the correlation profile is asymmetric with the correlation being more negative in negative months for hedge funds. When hedge funds are delivering the worst quartile returns, the diversification benefit is best. Equally interestingly, when the diversification or protection is least needed, i.e. in highest quartile months, the correlation is positive. It is explored whether a small allocation to VIX can be constructively used for risk reduction or downside protection in broad based hedge fund portfolios. Standard mean variance measures suggest a static allocation of 0% to 10%, which is consistent with the common sense approach of allocation only a very small portion of the portfolio to volatility. This range, together with the mean reverting property of VIX, and the asymmetric correlation of VIX and hedge fund returns is used to explore a tactical allocation strategy that outperforms a simple static allocation of VIX or a portfolio with no VIX allocation on a risk adjusted basis, while reducing downside risks.
Bridgewater Associates, Inc.Co-CIO Karen Karniol-Tambour joins Positive Sum CEO Patrick O’Shaughnessy at the 2023 Sohn Investment Conference. Below is the interview she says the market is very asymmetric right now because of the asymmetry between the upside vs. the downside, and I agree.
I’ll summarize:
If the economy enters a recession, it’s very bad for stocks, and this time the Fed is unlikely to immediately respond by lowering rates since inflation is a problem. So, the downside risk is large. It’s already priced-in to the stock market, so it won’t be a big surprise. Not a lot of upside potential.
If the economy doesn’t enter a recession, the Fed will be in a tough decision point, because inflation is unlikely to come down without a recession. If the Fed doesn’t ease like it’s already price-in, the market is going to be disappointed.
It’s asymmetric because the downside potential is greater than the upside.
The interview:
Patrick O’Shaughnessy:
What do you think that prevailing valuations, let’s say, just on like the big asset classes tell us about what the market thinks is going on? Like, what does it seem like is in prices right now, if you will, as you look at S&P 500 you know, multiples or something very basic like that?
Bridgewater Co-CIO Karen Karniol-Tambour:
WellI think the stock market is telling you that there’s going to be a modest economic slowdown, a pretty contained economic slowdown, nothing like you know a significant recession or anything like that, With that slowdown alone, the Federal Reserve is going to find that sufficient to go ease from you know, 5% to 3% extremely quickly, and that its going to do that despite where inflation is today because inflation is going to go back to totally reasonable levels that they want very very quickly. You see that kind of across stock and bond pricing you know bond pricing is telling you in places to be fine we’re not there’s no inflation from anything like resembling long term and the Fed’s about to ease pretty significantly without a significant slowdown.
Where that sort of leaves you is if the market I believe is asymmetric it’s very asymmetric because it you actually get an economic slowdown; that’s obviously very bad for stocks. I don’t have to tell you that that would be you know pretty bad for stocks. But there’s really not much of a recession priced into them it would be pretty bad. Usually the way you get out of that (as I was saying) is that every time there’s a slowdown the Central Bank just comes and eases right away. Now, not only will it be much harder for them to ease because inflation’s been more a problem. Tension is there, but that easing is already priced in and so even if they do kind of bite the bullet and say “I’m not going to worry about inflation” and ease, it’s already in the market prices it’s not going to surprise the market so much.
Then, on the other hand, if the market doesn’t slow, if the economy doesn’t slow so much, if we don’t get that kind of recession if the equity prices are right that you’re not going to get a big recession and the fed’s going to be a tough spot because I don’t really see why inflation’s going to come down with no recession. You have a very very strong labor market if nothing slows and so if they don’t ease like it’s already price they’re going to be disappointing. So, every day once we hit summer the Federal Reserve doesn’t pivot and ease that’s effectively a tightening relative to what’s priced in that’s also disappointing.
That’s a lot of room for disappointment that can happen whether the economy is strong or weak.
Patrick O’Shaughnessy:
That’s all sort of like what I’ll call you know relatively near to intermediate term future how do you think about portfolio positioning in light of that general view when you know like you for a long time it’s paid to just be long risk and have a very simple portfolio because of everything you’ve discussed. How’s that different today like how would you how do you think about positioning against this asymmetric setup that you described
Karen Karniol-Tambour:
I think it’s one of the toughest times to be an investor in many years because you know as you’re saying risk assets has been so good and I think risk assets are about as unattractive as we’ve seen a very long time and they’ve and that’s we’re seeing that come to fruition they don’t just bounce back you don’t just get kind of automatic rallies no matter what so it’s a hard time to be an investor I think as an investor you have to think about diversification in a different way diversification just wasn’t that important because the one asset people hold “equities” was just the strongest outperformer and the different places investors can kind of look they can look at geographically so they can look at geographies that have less of this tension places like Japan or China where you’re in a different situation you’re not about to hit a big Central Bank tension Japanese Central Bankers are pretty excited about getting higher inflation they’ve won for a long time and it’s far from, you know, out of control.
She basically suggests U.S. stocks are overrated and Japan stocks, Emerging Markets stocks, and Gold, are underrated.
My latest observation:
The Market Telling Us How to Invest Our Money for Asymmetric Investment Returns
“Although the cheetah is the fastest animal in the world and can catch any animal on the plains, it will wait until it is absolutely sure it can catch its prey. It may hide in the bush for a week, waiting for just the right moment.
It will wait for a baby antelope, and not just any baby antelope, but preferably one that is also sick or lame; only then, when there is no chance it can lose its prey, does it attack.
That, to me, is the epitome of professional trading.
When I trade at home, I often watch the sparrows in my garden.
When I feed them bread, they take just a little piece at a time and fly away. They keep on flying back and forth, taking small bits of bread. They may have to make a hundred stabs at a piece of bread to get what a pigeon gets at one time, but that is why a pigeon is a pigeon.
You will never be able to shoot a sparrow, it is just too fast.
That is the way I day trade.
For example, there are times during the day when I am sure that the S&P is going up, but I don’t try to pick the bottom, and I am out before it tops. I just take the mid-range where the momentum is greatest.
That, to me, is trading like a sparrow eats.
– Mark Weinstein in Schwager, Jack D.. Market Wizards, Updated: Interviews With Top Traders (p. 329). Wiley.
That was my first idea, and “Whipsaws are Common in Bear Markets” was my third pick for the title of my latest observation, published on our main website, which you can read here: When the trends change direction, I change my direction; what do you do?
I may be indecisive about semantics, but I’m always clear about the numbers.
In statistics, linear regression is a linear approach for modeling the relationship between variables.
Linear regression analyzes two separate variables in order to define a single relationship.
When we apply linear regression to capital market trends we are looking at price and time.
Investor sentiment is trend following.
Investors get more bullish as stock prices trend up, and more bearish as the stock market trends down.
See what I mean in Nothing Like a Price Trend to Change Investor Sentiment.
We’re entering a point in the stock market trend that could be an inflection point. My market risk indicators are elevated, suggesting DEFENSE, but they’re imperfect. In bear markets, we’ll see lots of whipsaws and head fakes, and OVERBOUGHT and EXTENDED can continue.
We published this observation on the Shell Capital website. To read it, see: The Stock Market is Entering an Elevated Risk Level
Our objective is asymmetric risk/reward for asymmetric investment returns; we are unconstrained as to strategy or market.
A skillful trend follower wants to catch a trend early in its stage and capitalize on it until it ends, so if we want to identify them early, we must necessarily focus on short-term trends to see if they can become longer-term trends and asymmetric profits.
With that said, in the month of October 2022, eight of the eleven sectors tracked by S&P sector indices are in the green, and three are in the red.
To read the complete observation, see U.S. Sector Trend, Momentum, and Breadth Through October 2022
Volatility measures the frequency and magnitude of price movements, both up and down, that a financial instrument experiences over a certain period of time. The more dramatic the price swings in that instrument, the higher the level of volatility. Volatility can be measured using actual historical price changes (realized volatility) or it can be a measure of expected future volatility that is implied by option prices.
To read the full observation, see: Stock Market Volatility Remains Elevated.
A whipsaw in trading and investment management is when you enter a trend and it almost immediately reverses in the other direction, resulting in a loss.
Whipsaws are a normal part of any trend system because trends do reverse, and sometimes sooner than you expect.
In The stock market trend is being tested I said,
“The breadth thrusts we’ve seen are typical of a new uptrend — unless* it’s a prolonged bear market. *IF this is the early stage of a prolonged bear market that is likely accompanied by a recession, then we’ll see many swings like this as it unfolds along the way.”
The stock index and the most weighted sectors like technology and consumer discretionary are very close to breaking price levels that should be short-term support.
Any further decline will increase the odds the U.S. is in the early stage of a prolonged bear market, which will include many swings up and down of 10 to 20% lasting several weeks.
Such swings lead to whipsaws for many tactical traders as they enter just in time to catch the top, and/or sell just in time the trend reverses in the other direction.
I’ve tactically operated through this many times before over more than two decades, and I’ve historically shown my edge during these conditions.
I have a hunch we’re going to hear the word “whipsaw” a lot in the coming months, so let’s go ahead and kick it off with The Whipsaw Song I had fun with back in April 2008 when Ed Seykota published it.
Give it a listen!
Mike Shell is the Founder and Chief Investment Officer of Shell Capital Management, LLC, and the portfolio manager of ASYMMETRY® Managed Portfolios. Mike Shell and Shell Capital Management, LLC is a registered investment advisor focused on asymmetric risk-reward and absolute return strategies and provides investment advice and portfolio management only to clients with a signed and executed investment management agreement. The observations shared on this website are for general information only and should not be construed as investment advice to buy or sell any security. This information does not suggest in any way that any graph, chart, or formula offered can solely guide an investor as to which securities to buy or sell, or when to buy or sell them. Securities reflected are not intended to represent any client holdings or recommendations made by the firm. In the event any past specific recommendations are referred to inadvertently, a list of all recommendations made by the company within at least the prior one-year period may be furnished upon request. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities on the list. Any opinions expressed may change as subsequent conditions change. Please do not make any investment decisions based on such information, as it is not advice and is subject to change without notice. Investing involves risk, including the potential loss of principal an investor must be willing to bear. Past performance is no guarantee of future results. All information and data are deemed reliable but are not guaranteed and should be independently verified. The presence of this website on the Internet shall in no direct or indirect way raise an implication that Shell Capital Management, LLC is offering to sell or soliciting to sell advisory services to residents of any state in which the firm is not registered as an investment advisor. The views and opinions expressed in ASYMMETRY® Observations are those of the authors and do not necessarily reflect the position of Shell Capital Management, LLC. The use of this website is subject to its terms and conditions.
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