What Is Take a Flier?

"Take a flier" is a colloquial term referring to the risk an investor takes when they knowingly make an investment that may result in a significant loss. It is a slang term describing the actions of a person who knowingly engages in a risky activity.

Key Takeaways

  • Take a flier is a colloquial phrase that references taking a big risk in hopes of an even bigger return.
  • It is a slang term that often implies the investor has no intention of getting any money back if the investment doesn't return an unusually large payout.
  • Common circumstances for using this phrase may include IPO investments, leveraged trades, or low-probability bets on an investment that could turn around unexpectedly.

What Take a Flier Means

The investment world often uses this term to describe the actions of an investor choosing to invest in highly speculative investments, with an awareness that they may lose money on the investment. This phrase, or the past-tense variation of it, can also be used to refer to the event of taking a large loss. For example, when someone says "the firm took a flier on that investment," it usually means that someone took an inordinate amount of risk or did not do their due diligence, but it could also be simply referring to the fact that a large loss occurred.

This phrase is used because when an investor takes a flier, the feeling of risk in the investment is mitigated by the potential for a significantly higher return if and when the investment pays out. An investor may also take a flier on an investment they believe in but that may not result in a large return. For instance, an investor backing an emerging industry may invest on the basis of a personal obligation, sometimes with the hope of profiting or breaking even at a far future date.

There can be any number of circumstances that cause a particular investment to present an increased risk, and in most cases, such strategies are only recommended for experienced investors who have carefully calculated the potential outcomes. While all types of investment include some risk, those who take a flier on an investment are typically prepared to see no return on that investment, and perhaps take a total loss.

Common Ways to Take a Flier

Four common situations in which an investor may be tempted to take a flier include initial public offerings, futures trading, options trading, and penny stocks.

  • Initial public offerings (IPOs) offer investors the opportunity to invest in a company that enters the public trading market for the first time. IPOs function as a method for a growing company to attract a large amount of capital in a short period and are frequently met with excitement both in the market and in the press. Risks abound in IPO investment. A company emerging in the stock market always carries a degree of uncertainty regarding its long-term viability in the marketplace. High publicity can skew the valuation of a company, sometimes leading to an overvaluation of that company and a less advantageous return on investment. Alternatively, an IPO without a great deal of public attention may result in stock that is undervalued as it emerges on the market, and thus a greater return for investors. Analysts have shown that 80% of IPOs trade below their initial price
  • Futures trading involves the investor agreeing to purchase an asset at a specified price at a future date. Frequently used in commodities trading, this type of investment initially emerged as a way for farmers to hedge against the value of crops between planting and harvest. Futures trading obligates the buyer to purchase the asset at the specified time at the predetermined price. 
  • Options trading offers the buyer a contract for the right, but not the obligation, to purchase a security at a specific price at a future date. Both futures and options are risky because they each specify a time requirement on a trade, and if the actual price of the security at the time set by the buyer is disadvantageous, the buyer will take a loss, particularly in volatile markets.
  • Penny stocks, or stocks that trade for less than a dollar per share, can result in significant profits. Stock performance in this category is highly unpredictable, and this area of the market is at the greatest risk of fraud.

Some other common high-risk strategies include venture capital investments, emerging and frontier markets, leveraged ETFs, limited partnerships, currency trading, junk bonds, and hedge funds