Compounding has positive asymmetry. A stock can only lose 100%, but it can gain multiples of that. This means a portfolio with one stock compounding at +26% and another at -26% doesn't break even over time; the winner's gains eventually dwarf the loser's total loss, leading to strong positive returns.

Instead of making large initial bets, a more effective strategy is to take small, "junior varsity" positions. Investors then aggressively ramp up their size only when the thesis begins to demonstrably play out, a method described as "high conviction, inflection investing."

Top growth investors deliberately allocate more of their diligence effort to understanding and underwriting massive upside scenarios (10x+ returns) rather than concentrating on mitigating potential downside. The power-law nature of venture returns makes this a rational focus for generating exceptional performance.

Top tennis players like Rafael Nadal win only ~55% of total points but triumph by winning the *important* ones. This analogy illustrates that successful investing isn't about being right every time. It's about consistently tilting small odds in your favor across many bets, like a casino, to ensure long-term success.

Most good investors succeed by recognizing patterns (e.g., "SaaS for X"). However, the truly exceptional investors analyze businesses from first principles, understanding their deep, fundamental merits. This allows them to spot outlier opportunities that don't fit any existing mold, which is where the greatest returns are found.

The asymmetrical nature of stock returns, driven by power laws, means a handful of massive winners can more than compensate for numerous losers, even if half your investments fail. This is due to convex compounding, where upside is unlimited but downside is capped at 100%.

Before committing capital, professional investors rigorously challenge their own assumptions. They actively ask, "If I'm wrong, why?" This process of stress-testing an idea helps avoid costly mistakes and strengthens the final thesis.

A core discipline from risk arbitrage is to precisely understand and quantify the potential downside before investing. By knowing exactly 'why we're going to lose money' and what that loss looks like, investors can better set probabilities and make more disciplined, unemotional decisions.

According to Ken Griffin, legendary investors aren't just right more often. Their key trait is having deep clarity on their specific competitive advantage and the conviction to bet heavily on it. Equally important is the discipline to unemotionally cut losses when wrong and simply move on.