Opportunity Analysis Framework

Your Most Important Job as an Investor

Your primary job is not to pick winning stocks; it’s to be a great evaluator of opportunities. This applies to investments, career changes, business ideas, and even major life decisions. A strong framework prevents you from chasing bad ideas and helps you spot the truly asymmetric bets.

The Risk/Reward Matrix

This is the foundational mental model for categorizing any opportunity. Every decision you evaluate will fall into one of these four quadrants.

	Low Risk	High Risk
High Return	Do Immediately Obvious yes. These are rare. Act quickly when you find one. (e.g., Getting a 100% employer 401k match).	Analyze Deeply This is where fortunes are made, but also lost. Requires deep research and due diligence. (e.g., Investing in an early-stage startup).
Low Return	Automate or Delegate Necessary but low-impact decisions. Spend minimal mental energy here. (e.g., Choosing a high-yield savings account).	Avoid Completely All of the risk for none of the reward. These are traps. (e.g., Buying a lottery ticket, day trading penny stocks).

Quantitative Scoring Framework

For opportunities that fall into the “Analyze Deeply” quadrant, use a scoring system to compare them objectively. Rate each factor from 1 (worst) to 10 (best).

Upside Potential: How large is the realistic best-case scenario? (10 = life-changing return)
Downside Risk: What is the maximum possible loss of capital and time? (10 = minimal, recoverable loss)
Time Commitment: How much effort is required? (10 = almost completely passive)
Goal Alignment: How well does this align with your primary life goals? (10 = perfect alignment)
Confidence Level: How high is your conviction based on your own research? (10 = extremely high)

Look for Asymmetric Bets

The best opportunities are asymmetric: the potential upside is vastly greater than the potential downside. If an investment has a 100x potential return but your maximum loss is only your initial investment (1x), that is a highly asymmetric bet worth considering.

Key Qualitative Questions to Ask

Numbers don’t tell the whole story. Before making a final decision, ask yourself these questions:

What is the irreversible decision here? What action can I not take back? Focus your analysis on that single point.
What would have to be true for this to be a grand slam home run? This forces you to identify the key variables that drive success.
What is the single biggest risk that could kill this opportunity? If you can’t identify it, you haven’t done enough research.
If this fails, what will I have learned? Can you fail forward? A failure that provides a valuable lesson can be a good investment.
Does this opportunity open up new doors? The best opportunities create more optionality for you in the future, even if they aren’t the most profitable in the short term.
What would the person I most respect do in this situation? This helps remove your personal biases and emotions from the decision.