I recently stumbled across Taleb’s barbell strategy. His thesis is that due to unknown unknowns (black swans), trying to manage a portfolio of (supposed) medium-risk investments is pointless; their true risk is impossible to compute, so you can’t tell if you’re overbetting or being compensated well. You can be ruined by a miscalculation. Instead, one should invest in a linear combination of extremely safe and extremely risky bets, which are both easier to quantify, to achieve a net medium-risk portfolio. You insulate yourself from the rare risks and expose yourself to the rare benefits, while avoiding the dangerous darkness of the middle ground.
A barbell portfolio might keep 90% of in conservative low-risk investments designed only to preserve capital and use the remaining 10% on speculative bets, which usually fail but occasionally pay off big.
The conservative side might be things like FDIC-insured American savings accounts, Swiss bank accounts, short-term treasuries/T-bills, short-term TIPS, and maybe a basket of precious metals.
The speculative side might be things like index put LEAPS, cryptocurrency, memestonks (sic), biotech startups, etc.
I recently stumbled across Taleb’s barbell strategy. His thesis is that due to unknown unknowns (black swans), trying to manage a portfolio of (supposed) medium-risk investments is pointless; their true risk is impossible to compute, so you can’t tell if you’re overbetting or being compensated well. You can be ruined by a miscalculation. Instead, one should invest in a linear combination of extremely safe and extremely risky bets, which are both easier to quantify, to achieve a net medium-risk portfolio. You insulate yourself from the rare risks and expose yourself to the rare benefits, while avoiding the dangerous darkness of the middle ground.
A barbell portfolio might keep 90% of in conservative low-risk investments designed only to preserve capital and use the remaining 10% on speculative bets, which usually fail but occasionally pay off big.
The conservative side might be things like FDIC-insured American savings accounts, Swiss bank accounts, short-term treasuries/T-bills, short-term TIPS, and maybe a basket of precious metals.
The speculative side might be things like index put LEAPS, cryptocurrency, memestonks (sic), biotech startups, etc.