An Asymmetric Investment Opportunity
"Some hedge funds have made enormous returns by looking for asymmetric investment opportunities. These stem from finding upcoming events that are not well understood and which have the potential to cause dramatic stock movements in the case of a positive outcome. The chances for such a positive outcome may be modest, but if it does occur the potential reward dramatically offsets the risk of being wrong. This is asymmetric investing and biotechnology lends itself very much to this approach.
For an asymmetric opportunity there has to be lack of awareness or extreme skepticism that a positive outcome can occur. Small biotechnology companies fit this approach because most Wall Street analyst coverage in biotechnology is focused on larger biotechnology names (more symmetric investing). In addition, the large number of trial failures in small biotechnology has produced a pervasive skepticism that any clinical trials will succeed.
Asymmetric investing does not mean that an investor is smart enough to predict with certainty clinical trial outcomes. The premise is that the event has a reasonable chance of occurring, is unexpected and if it does occur the upside potential dramatically offsets the risk of losing much or all of the investment if the outcome is negative." -- Larry Smith, Smith On StocksCourtesy of a friend of the blog, the above description of an asymmetric investment opportunity is informative, cogent and, I think, directly applicable to Provectus.
As I have written from the outset, investors often underestimate or overestimate risk in the context of the return they should expect. Just because a so-called safe asset or security could provide a safe return does not mean the expected return is commensurate (high enough) for that level of risk. Conversely, just because a so-called risky security could generate a robust return does not mean the expected risk is commensurate (too high) for that amount of return. Provectus falls into the category of an investment opportunity where the risk-reward profile is clearly and visibly out of whack.