Wildcatters have an almost perverse obsession with binary investments.
Binary investments are “swing for the fence” deals that have a possibility of being a complete and total loss, however, if successful, can make the investor a huge return.
Simply put: Go Big or Go Home.
Flipping a coin has a binary outcome. There are no silver or bronze medals and there are definitely no ties in coin flipping. You either win or you lose.
Investing in a mutual fund is the opposite of a binary investment. A money manager selects multiple stocks that he believes has potential growth with limited downside.
Some of those stocks will thrive while others may not live up to expectations. By spreading your investment over a range of various companies, the investor is almost certain to NOT lose his entire investment.
He is also almost certainly not going to have explosive life-altering growth with the mutual fund.
An example of a binary investment is drilling an exploratory well in a frontier area: you might drill a dry hole and lose everything…but you might hit a gusher.
Investing in a high tech start-up usually has a binary outcome: you might lose everything…or you might be a major shareholder in Facebook.
Wildcatters love ROI deals (return on investment) far better than ROR deals (rate of return).
Binary investments might give you a 10X ROI on your investment, however they will rarely give you a 10% ROR.
Your appetite for risk will be directly proportional to your appetite for binary investments.
Binary investments are exciting and potentially very lucrative…but, remember, the preamble to HIGH REWARD is always HIGH RISK!!
