Portfolio Stability And A Good Night's Sleep

If one goes to a place like portfoliocharts (strongly recommended for the interested asset allocator), there's a concept that we have struggled with.

It's the idea of Start Date Sensitivity.

For us, this is not at all intuitive, so let's try to go all the way to see where we are now in our understanding. We have discovered that it's key to quite a lot of insights around investment portfolios.

It's a funny and unusual measure. It took us quite some time to start to understand this way of looking at a portfolio. 

One way to define it is as a measure of how good a guide the 10 years last history has been for the 10 years that lay ahead. By pointing out when this difference is as large as possible (both in the postive and negative sense), it focuses on the year when the previous time period was as maximally misleading for the upcoming time period, and how big that effect was. 

Is history a good guide for the future?
(Reconstruction of the West Pediments of the Parthenon, CC BY-SA 2.0 Tilemahos Efthimiadis)

Going with one asset class

Let's look at some examples:

• Total US Stock Market: Luckiest 10 years = 14.9 percent points better, per year, than the preceding 10 years, Unluckiest 10 years = -18.1 percent points worse per year then what the preceding 10 years annual average return hinted at.

So this mean that a happy US investor could sit and look at the stock market and think that: well, this is sure looking good. And at some point, the investor would say that, what the heck, the last 10 years have been going really, really well. Let's jump in and put my savings in the stock market.

The most unlucky the investor could have been when doing that decision, was the period when the stock market performed on a yearly average -18.1 percent points worse per year, for 10 years, than it had done the last 10 year period.

So that's a measure of how bad a guide for the future the last decade was.

For the US stock market, that would have happened in 1999, back when we were in our teens. The market had had a return on around 14 percent per year for ten years, but that would not continue. The average yearly return for the next 10 years would be -4 annually. This gives us the most unluckiest start date sensitivity for 1999, with those 18 percent points .

As both of us experienced and at least vaguely remember 1999, this negative experience colored our view of the stock market and probably at least partly explains why we treat it with caution. 

Of course, time would have partly fixed it for our unlucky investor, but it would take a very long time indeed. Still today, that 1999 investor would have got only a modest 5% return per year from that initial decision, and a lot of volatility on the way. Not that much of an issue if one is a teen and just started to accumulate money. More nerve-wracking if one is deeper into one's career and accumulation, and put substantial money on the table.

On the other hand: the luckiest investor would have jumped onboard the stock market in 2009 and then been in for ten tremendously good years, a lucky strike we're still part of.

Just for fun, let's have a look on a much more volatile asset class. No, not bitcoin. Gold, of course. 

• Gold (USD): Luckiest 10 years = 21.0p.p. , Unluckiest 10 years = -30,7p.p.

One would probably be close to insane to put a significant part of one's money in an asset class that is as volatile as gold, but let's play with the idea. 

In that case, an investor, after witnessing a terrible performance for gold during 10 years and then by some miraculous inspiration buying into it anyway, could be 21 percent points better off, per year, for the upcoming ten years. 

So the start date sensitivity goes both ways, and the bigger it is, the less guidance we seem to get from the last ten year period.

What happens if we mix two assets?

Let's instead mix a healthy portion of the stock market with a substantial amount of gold. Let's say by using our hypothetical 80/20 split.

• TSM (80%), Gold (20%), looking on performance in USD:  Luckiest 10y= 10.6 percent points, Unluckiest 10y = -11.3 percent points difference per year

What does that mean? Well, our investor would still be in for a surprise if she hit the unluckiest year, but after yearly rebalancing in and out of that gold, she could comfort herself that she would be much better of than with going totally into the stock market, and she would have come out quite ok 10 years later and would be back in black numbers much quicker.

Good for her.

Several asset classes

What happens if we go to our more conservative portfolios that we've been using ourselves, where we mix gold, long term bonds in different currencies, cash and small and large cap stocks, both domestically and abroad?

• Permanent portfolio, our take on it, in SEK: Luckiest = 5.1 p.p. , Unluckiest = -4.9 percent points difference per year.

The results are roughly the same for the US market, but with even smaller sensitivity. You can read more about our take on the portfolios here, here and here.

What does this mean? Well, there was a  year, where the last 10 years had an annual average return of 10%. If our unlucky investor jumps in that year, she would be in for 10 years where the average annual return would be 5.1%, or 4.9 percent points worse than indicated by the preceding 10 year period. All this after inflation.

And that was the most unlucky difference that ever happened during the last 50 years.

So in the worst case it would be roughly the same as for the stock market, but with much lesser volatility. And the permanent portfolio is back in black much quicker.

That's a glimpse of why we, who both were into our careers and had a bunch of money, decided to start our investment journey with the permanent portfolio. 

The permanent portfolio with its more narrow start date sensitivity, in contrast to the stock heavy alternatives, almost entirely avoids the question of 'is this the right time'? 

That's an important, stress-inducing question that can be avoided.

Finding our path

But of course, one pays a price with the permanent portfolio when it comes to where return. So now the fun part. 

• Our Pathfinder Portfolio, our take on it, in SEK: Luckiest= 6.5 percent points, Unluckiest= -7.3 percent points difference annually
• Our Pathfinder Portfolio, our take on it, in USD: Luckiest = 4,1 p.p. , Unluckiest = -4,2 p.p.

Our pathfinder portfolio of course has a higher start date sensitivity, measured as the difference between the luckiest and unluckiest points, than the permanent portfolio.

But still, it's much, much lower than the stock market. For our domestic set-up, the average return for the pathfinder portfolio was 9.2%, and a US adaptation was 7.3%. 

The total US stock market for the same period had an average return of 8.3%. 

So by mixing a combination of individually high volatility assets, one gets a lot more safety, quite small sensitivity in regards to when to buy into the portfolio, and an average return on par or even higher than the stock market. 

Just saying.

A Good Night's Sleep

That could be the end of this article. But it's not. 

What we then slowly realized was that the question if one should put all one's money in this or that portfolio is not only a question about start date.

It's not a one-time question.

It's a question that comes up all the time, nagging with these little thoughts that can keep anyone who is not a Stoic God awake at night.

• Have the last years been booming? How much could we realistically loose by sitting still?
• For how long should we accept that the portfolio is lagging behind? 
• Should we sell tonight? Or should we sit still and hope that the boom continues for a little longer?
• Do we dare to buy into an asset that has been lagging for a long time?

All investors take the decision if we should stay in an asset allocation or leave it every night, irregardless of if we try to pretend that we don't. There's no real way of avoiding this, as taking no decision is still a decision.

At the bottom of it, start date sensitivity is about the stability of an asset mix. Having a good stability in the mix of assets means that one has to think much less about time periods, paradigms, bull and bear markets and timing in general, and all those little nagging questions that timing entails.

Because the effect of being lucky or unlucky with timing has much less impact on the performance of the portfolio.

The decision to stick with the portfolio can then truly become permanent, with less second-guessing, and better sleep at night. 

Farewell,

//antinous&lucilius

Where to go now?

• Go over to portfoliocharts.com and play around for yourself.
•  Read about the Pathfinder Portfolio
• ... or the Permanent Portfolio: A Portfolio for Accumulation Part 1 and Part 2.

Note on the numbers: As usual, this is back-testing from 1970, cumulative annual growth rate, with inflation removed. 

There's Nothing More Important Than Our Freedom

Lucilius was trying to go back in memory and see how the seeds to his quest for freedom, including financial freedom, was born. 

The First Seed

One of the most fundamental and first seeds where planted around the age of 16. 

I was then living in southern France. My family there was more African than French according to themselves, with a grounded attitude of trust in humanity. It was the kind of family that would never lock the doors to the house, in case if someone needed to get in, in the same way that people might do the same high up on arctic latitudes. 

Contrarian ideas fostered by necessity and climate.

One day my foster-dad got hold of me and said in the only language he knew - the local dialect of southern French, with a certain twang to it - if you know you know.

- Il n'y a rien de plus important que ta liberté. 

There's nothing more important than your freedom.

That wisdom stuck. He phrased it simply, in a heart-felt way that my real parents never had done, and we're probably incapable to even formulate. 

These words became an ingrained attitude to many of my choices later in life, and I still can recall the episode, more than 20 years later. 

Place de la Republique, Arles
CC 2.5 Rolf Süssbrich

The Second Seed

Then, coming of age as a young boy in Scandinavia, and in a surprisingly conservative, calvinistic and eerily religious village, had its next levels of impacts.

Let's not dwell too much on it, but for many obvious reasons I had a strong sense that the world around me was fake. 

To me, what was judged as the normal life was marrowed in what I saw as hypocrisy and narrowness. In parallel, I think, to the sense that the fire community also discover that 'normal' and 'what's in your own interest' are two very different things.

Happiness doesn't come in a standard package, for anyone, from what we've seen so far.

I started my life as a young adult with an ingrained idea of the importance of freedom, and knowing that normal and good where two different things.

Anyhow, we both started our lives as young adults.And our work-lives began. We thought we had so much figured out. But we were clinging to shallow identities based on our work, and still in a sense, we were quite lost. 

The Third Seed

Antinous and I met, became friends and finally understood that we could just move in together as well. 

But our jobs took worse turns, for both of us. This was of course nothing unexpected that this might happen sooner or later. 

But, in retrospect, we had built a lot of our sense of worth on our work identity.

And what felt like burnout at the time, was in all regards an identity crisis. Who where we if work didn't, well, work?

And work is nothing one can say no to, as long as one wants to pay the rent. 

Or so we thought.

What we actually needed was a deeper identity, not as linked to our titles and careers, but linked to something more fundamental: to who we were and what made us happy with life. And we clearly needed more sources of safety.

That was when we understood that work in the usual, identity-creating way of looking at it, as a profession, is not as robust nor as mandatory as it might seem.

The idea is born

I, Lucilius, noted that I had quite some money saved, mostly in bonds and on savings accounts, and I hadn't been thinking very much about it. But I did realize that the yearly return - around 4-5% - was not enough to live from our accumulate anything substantial from compound interest.

Antinous, who has this ability to have sudden insights as if the muses are talking directly to him, then noted that if I payed attention to the returns, I could probably quite easily reach 7%.

That idea changed things. Then suddenly we started to understand that it was feasible to actually build a fortune for us, not-at-all extraordinary people. And the nest-egg could become big enough to live indefinitely from.

There was a lot of rich-by-Excel going on that spring.

And we started to study how to set up our finances, and what portfolio to go for. That took around 3 months, then we acted.

Conclusions

To value one's freedom, then to see the shallowness a life called normal, and to crave a new, independent identity. A freedom that cannot easily be taken away.

Those were the three seeds that gave emotional fuel to value our path to freedom, when the realizations finally came.

Such was our build-up to our realization of venturing out onto the freedom journey.

Farewell,

//antinous&lucilius.

Thinking too much or too little

We think that there's a dichotomy between thinking too much and too little in the financial freedom-sphere. One could call it oversimplification versus overthinking. 

Clearly overthinking.

(Ny Carlsberg Glyptotek, Copenhagen, 2019)

Here's an Einstein-ism: one should, generally, simplify as much as one can, but not further. 

In other words: it's better to aim for the sweet spot instead of finding oneself in the extremes.

Oversimplification

There's a popular advice in investment that goes something like this. Keep investments simple - really, really simple. Just put your money in one broad index fund and leave it there and don't think more about it. 

Then keep the savings rate high, and if it's really high (50-80%) one will hit financial independence soon enough.

It's admirable, and it's absolutely true that investments are easier than one might think, and if one does the above and sticks to it, one is probably well off in 10-20 years.

But is the advice good? 

The answer perhaps lies in that word 'probably'. There are several layers behind what the word 'probably' hides.  

We would like to point out three things with the seemingly simple advice above. 

Oversimplification 1. Difficulty of keeping calm.

The above assumes, and this is a BIG assumption, that the investor really can stay calm during a credit crunch and stock market setback. Many, many new investors can't do that. 

And many seasoned investors neither, even if they think so. 

When one jumps in and out of the market, driven by fear, one might very well destroy a large part of one life's savings. Then one might have a really hard time to get back, or perhaps get so scared that one never gets back to investing. 

Oversimplification 2. The risk is higher than the oversimplifier thinks. 

Risks don't just disappears because one doesn't want to think about them. 

One aspect of this is the effects of start date sensitivity. A new investor is likely to jump in after seeing others earn from the stock market. The stock market is, after our new investor has been standing by the sidelines, more likely to be close to the top of a bubble/burst-cycle.  The sudden fall might come as a big surprise, and there might be a long, long time until a beginner is back where she started, with the emotional toll that follows.

The adage is that there's just so many decades in a life and one probably only get one shot at early financial independence.

Another challenge is that the highest mountain we've seen is probably not the highest mountain there is. What does that mean? It means that during the last 100 years there have been several crises that set an investor back with 10+ years, and the worst with 25+ years. But that's the last 100. Going back to the 1870, it's even worse in many countries. 

A lifetime can prove to be long, so one should probably think a little about the possibilities for the future, and bear in mind that the highest mountain we've seen, well, as said, is probably not the highest there is.

This is a game where our freedom is at stake, and chances to play the right game are few. Probably we will only get one shot at truly early retirement. 

We only get one roll of the barrel for our gamble, so it might be wise to consider the odds. Or, in other words, we only get one shot at the target, so one should mind the precision of the weapon. How many empty chambers in that revolver do we need to be ok with, to play russian roulette? When the counterpart is unreliable and not quite revealing the whole truth to us? 9 to 10? Or 99 to 100? Or 999 to 1000?

Oversimplification 3. One doesn't get a fair compensation for risk. 

The risk, however we measure that, is related to what we pay to get something in return; in investing that's some kind of expected return - average return for the oversimplifying investor, baseline-return at 15% of the worsts cases for the more thoughtful investor perhaps. 

But what do we pay? However we measure, the quota between risk and reward is not particularly good for the oversimplifying investor. 

This is not just an academic problem. Let's not just consider the average case. Is it ok to have a bad case that prolongs the time to financial independence 8 years into the future? Or 15 years? Or 20 years? Where is one's ruin, one's breaking point?

For a total stock market investment, beginning some time into one's career, the bad case might not be acceptable, corresponding to that ill-fated chamber in the revolver.

And furthermore, and more importantly when getting closer to independence, volatility is BAD for the safe withdrawal rate. Really bad. 

Just some very easy tweaks with the investment strategy can significantly improve the safe withdrawal rate (e.g. 4%-rule). This can turn into additional budget to spend in the freedom phase, or extra safety margin, or an earlier retirement.

This is why we think one should think twice before giving the above overly simplified advice to oneself or anyone else. 

It might be worthwhile to stop and think, at least a little more then a few hours or reading one single author or blog post, before putting one's life's savings are the table.

Overthinking 

The first effect of overthinking is, of course, paralysis by analysis. Instead of thinking for too long, one should select a reasonably conservative approach, go for it, and learn as one goes. We have never really learned something from the armchair beyond the initial reflections.

It's by trying, repeating and refining that we make a sufficient emotional investment to really think hard, observe and learn.

So sitting still and overthinking will not help much more beyond some thorough initial investigations. Then it's time to act.

Ego & overconfidence

But when one acts, one shouldn't trust that logical-ego-complex-voice in one's brain, with its alluring whispers that everything is square, well-behaved and understood.

The consciousness is a late and secondary addition to the brain, as Joseph Campbell observed, and is never to be fully trusted. Our consciousness thinks it's in the driver's seat but, as it seems, the consciousness is better at making up a story why it's in control than truly run the show.

We don't understand what we don't understand. And if one is too prone to the ludic-fallacy - the fallacy that we mistake the world for being a casino with understandable risks; then it's about at that point that we get run over by a train that showed up from a totally unexpected direction.

Hence, for instance, for us we never pick single stocks and call that investments. Actually we never pick single stocks. 

Don't think soo much that you fool yourself that you can outsmart the market. Then we are overthinking. 

It's always much easier to fool oneself than the market.

What do you live for?

Even worse in the overthinker's corner is when one gets really interested by investments. The inner nerd takes over, and uses the stock market or other speculations to cover for another need: a feeling of emptiness, a hope of recognition, a want to feel alive, a complex of inferiority or superiority.

Needless to say, such games are not a good foundation for decisions regarding one's life's savings.

For a retail investor, like us, the stock market shouldn't be the meaning-creating part of life, or an emotional thrill.

There are much better things to spend one's time with.

Conclusion:

It's our life savings we are talking about. Think of all the long years it took to come where we are now.

It's worth to spend some time, perhaps even weeks, to dig into the subject and do research.

A checklist for those weeks of study could be:

• Do we know at at least three different portfolio strategies, and at least one that uses other assets than stocks and bonds? (so, at least, one knows what one is saying no to when selecting one's own strategy)
• What are the longest drawdown periods during the last 50 years for those portfolios? 
• How would the longest drawdown feel if that happened to us? If it was 20 percent worse?
• What is the difference between some kind of baseline return and average return, and why is that important?
• How long was the longest time and baseline time to financial independence for the portfolios of our choice, for our circumstances, during the last 50 years? 
• How would the longest time to financial independence feel for us?
• What is the safe and perpetual withdrawal rate and how does that compare for the portfolios?
• What can be meant with start date sensitivity, and in what way can the time-stability of portfolio returns be important both for starting with investments, and also after one has been in an investment for 5 or 10 years?

When those questions are at least partly understood, then there is probably not that much more to gain from spending years trying to understand an art that still at its core is both random and beyond the grasp of the ego--narration-complex-fellow in our monkey brains. If one tries, one needs to be prepared, as said, that one is more likely to fool oneself and not the market.

In the choice between overthinking and oversimplification; don't let the pendulum swing too much in either direction.

Farewell,

//antinous&lucilius

Where to go now?

Read more about our articles about portfolios here.

Or read more about volatility here.

Wrestling Volatility

Let's say that we during adventurous travels in the Hindu-Kush fall victim to a sinister maharaja. 

The whole affair has something to do with lovers, defamation and the beauty of punjabi men, that sort of thing.

To our horror, we learn that the punishment for debatable behavior is to be thrown out of a cliff. The maharaja then, according to ancient custom, gives us a choice: being thrown out of a ten meter (30 feet) cliff, or ten times from a one meter (three feet) cliff.

A big hit is, most would agree, much worse than many small hits. So either one has to make sure to chose the smaller hits, or else have a way to avoid the effects of the big drop.

The drop is of course our metaphor for volatility. Volatility, as our sinister maharaja, is the harbinger of ruin, and it's not symmetric. 

But volatility can also be the omen of good fortune. Let's say that one has prepared with a thick, bouncy mattress below the cliff (needs to be prepared in advance), or has learned how to fly a squirrel suit (takes some deliberation). In the last case, larger volatility might even be needed to get us somewhere. 

Volatility is also fractal. In the unlikely event that one survives the first drop, one might roll over the edge down below and find an even worse drop. One can lose 50% many times over when the markets go down. 

Volatility might seem to be calculable and controllable, but then shows up in new shapes unheard of; tulips, house markets, failing financial institutions, or the maharaja's crazy son, for instance.

Or perhaps the maharaja's (wooden) palace catches fire. An once-in-a-lifetime, high-volatility-event. And all the fire exits will be blocked by investors - or rather, ministers and courtesans, perhaps - that try to escape the burning palace, just as we ourselves might find that we need that fire exit. 

Some might laugh in the face of volatility. Some might want not to think of it. Some might earn from it, with that mattress and squirrel-suite.  

Whatever we might think of our tolerance, it's not naïve to expect that volatility might hurt more than our fragile human constitutions can take. 

The wise man prepares in advance. And while preparing our defenses, remember that it's better to protect against ruin rather than chase the higher return.

A high-volatility mountain range where it pays of the be both wise and prepared.

CC-4.0 Zeeshan-ul-hassan Usmanif

Let's look at three strategies to reach financial independence, from a Hindu-Kush perspective.

1. The very very heroic approach
2. The heroic approach, including mattress
3. The squirrel suit approach

1. The Very, Very Heroic Approach

A very, very heroic approach to financial freedom, akin to dare the maharaja's crazy son, Prince Singh, on a duel, is to start a company. To some extent or another, it's a gamble, heavily relying to our own capabilities and wit. No matter how good we fight there will be luck in the equation. 

We can fund the company with its own cash flows, or even more volatile: lend a bunch of money, buy something of value to others (rental properties, someone?) and sell the produce of the investment to others.

Then, lay awake at night at pray that the company doesn't burn to the ground, a competitor shows up and the market demands stays, or the Prince having a nasty trick up his sleeve.

Darius I, early ruler of the region.

It's as old as the the written word. Perhaps the written word even exists because of this strategy to wrestle volatility and get rich. And if you're lucky, one might get very wealthy with this approach - killing the prince, inheriting the whole of the Raj, et cetera.

But ruin can very well be complete, and severe.

2. The Very Heroic Approach

A less, yet still very heroic approach is to bet on all companies in the economy instead.  

The very heroic approach is to buy a broad stock market index fund, with the attitude that in the very long run the stock market will be going up.

Why is it heroic, and why do we say in the very long run? Well, because it can take 10-20 years to recover after a big drop for the stock market.

A few times in one's lifetime, one is likely to hit that big negative event. We know big volatility will come, because what is an unlikely event in one year suddenly becomes a likely event in ten years. Then, like our ten meter drop above, one better be of an unusually strong built, or have something prepared in advance to survive the drop. 

No, we hear you scream, you wrong, I've heard that the markets recover much quicker! But we're so sorry. Let's not mix up the duration of a crisis (often quite short) with the time for recovery of the stock market (can be several decades long). But yes, there is hope. Bear with us.

The way to survive this for many is to try to construct a mattress that will dampen the fall. 

The mattress can be a cash buffer one can live off during the worst year, or focus on the cash streams created by (hopefully) less volatile dividends. 

Another way is to have complete blind faith in the magic of back-testing and rely that the 4 percent rule* is not just a product of back-testing but more akin to a universal constant. 

So there are ways to try to get around the volatility of the stock market as a total. Open in new tabs for future reading!

• 20% Barbell - a better price for risk
• Dividends And The Sweet Scent of Mental Accounting

Yet, the attitude to risk still needs to be, well, heroic to say the least. In the accumulation phase, the goal of financial independence can suddenly be postponed five years or more into the future when the stock market misbehaves.

In the financial freedom phase, the size of the stash might be reduced for decades, and if one is unlucky, what felt like a safe margin for freedom might become a very small margin indeed. If something unforeseen hits - as it has a tendency to do in real life, we dare to say - that might even make the stash never recover again. 

3. Learning to fly on volatility

The alternative to the mattress might be to learn how to fly in times of big volatility, perhaps even understand how to earn from it. 

Instead of relying on one asset class, we have gone for four. The advantage with aiming for a set of very different asset classes is that they move much less in tandem, yet each and one of them takes part in the economic growth of humankind over time. 

Another appetizing property is that the portfolio profits from volatility in most cases. Each and one of the assets in the portfolio would be very dangerous to own by itself, but because they are put together, they create something that is much less dangerous, and will often  move counter to the stock market during a bad year.

So when volatility strikes, with big drops in any single asset-class, we can fly over the cliff with a surprisingly stable flight despite all the rough edges that are zooming past below us. 

And the types of portfolios we chose has an okay performance, getting us much more safely to financial independence by neutralizing the effect of a big drop. 

So with the right preparations, one can profit from the sinister maharaja's proposition, and both earn from the volatility that might kill others, and in the same time fly safely over rough terrain.

Read more about our thinking around our portfolio here:

• Time for Change: The Pathfinder Portfolio. 

Farewell!

//lucilius&antinous

* The 4% rule says that never, in the last 50 years, have a stock-heavy portfolio run out of money if one takes out a fixed sum each year and adjust it upwards with inflation. That yearly sum corresponds to 4% of the portfolio's worth the first year, and is often taken as a universal constant with the reliability of the Planck length, even though it's of course derived from historical data and thus assumes that nothing worse can happen than what happened during the last 50 years or so.

Always also bet on a loosing strategy

Fundamental to our way of investing is to apply several strategies - in the shape of asset allocation - at the same time.

It feels good to see a strategy be on the winning side. 20-40 percent up in a year as stocks are now, when a credit crunch seems like a forgotten phenomena domesticated by seemingly sage monetary policy. It's all sweet for the ego. We can look ourselves in the mirror - and look on the black numbers on our accounts - and pat ourselves on the shoulders and admire how smart we are.

That's the easy part.

The hard thing in our case is that we are much more paranoid. And being paranoid seems to often involve to  also always bet on a loosing strategy.

There's at least one strategy that we have in our portfolio that needs to be on the correspondingly very much losing side.

Not just a little on the losing side, but on the lunatic kind of loosing side that no-one writes anything positive about, except predictions of ruin and how imbecile one has to be too have even a penny in that corner, not to mention one's mental prospects if one actively pours money in that direction.

At the time of writing, that might be dollar-denominated long term (25y+) treasury bonds. Only a fool would buy, the saying goes.

He had it going, but in the end even his horse abandoned Marcus Antonius

CC-3.0 Pierre Selim

Not only that, we need to buy into the losing strategy, and see that money disappear in a market that has lost faith in whatever asset it is.

The losses are offset by the winning asset, in most cases (but not always). 

In order to get protection, one can't only win. One always also need to accumulate losses.

Because when the pendulum swings, everything catches fire and everyone is running to the doors, there will be no time to buy into that contrarian asset. 

The only sane thing to do is to already stand with a substantial part of one's wealth in the corner that most investors thought was wrong.

The final conclusion would perhaps be: additionally to winning, make sure that you're also always loosing money.

Farewell.

/antinous&lucilius

Were to go from here?

Try: A well kept secret: our portfolio for accumulation