True, you avoided paying taxes, but you have less money than you would if you didn’t make the failed investment (you lost more money on that investment than you saved in taxes). Therefore the statement “no downside risk” is incorrect. Your downside risk is discounted by your tax rate, it’s not zero.
No, you make a ton of risky investments to build a diversified portfolio banking on only a few of them being unicorns. This allows you to cash out previous gains to match all of the losses that you pick up each year on the failed investments, while the successful ones keep appreciating and adding to your unrealized gains.
