What It Is:
How It Works/Example:
For example, you purchase 100 shares of Company XYZ at $5 per share, for a total of $500. If you know or believe that Company XYZ shares rise to $15 per share at some point, your upside equals ($15-$5 = $10) per share, or $1,000.
The reverse is true for people who short stocks: Their upside comes when the price falls.
Why It Matters:
Upside is the fundamental motive for making any investment -- and with the risk associated with that investment. Higher-risk generally have more upside; low-risk investments generally have less upside and are thus primarily concerned with preserving the value of the original investment.
Ultimately, expected upside is based on estimates and educated guesses. No analyst or investor can predict the future, thus making upside inherently unpredictable.