One thing I've changed my mind on in the last few years is the risks presented by leverage.

My historical thinking and most people's thinking tends to be too black and white and leads to sub-optimal decisions.
To give an extreme example, what is riskier:

1. having 100% of your (unlevered) portfolio in Tron and XRP

2. Having 1.5x leverage applied to a highly diversified portfolio of stocks, bonds, commodities, and illiquid alternatives
I think basically everyone would agree the first is riskier (don't @ me XRP people).
In general, I think investors often take on more risk through concentration to achieve outperformance and they would be better using diversification + modest leverage to get the same returns with less risk.
I can think of a pretty significant number of people I know that are mega-long crypto and tech but think even mild leverage is way too risky and not even a consideration.

In the long run, I think this will prove to be a bad choice.
Of course, the most prudent/ergodic option would be to use a highly diversified portfolio with no leverage, but that tends to trail common benchmarks and people get hit trying to keep up with the Joneses.

taylorpearson.me/ergodicity/

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More from @TaylorPearsonMe

23 Apr
I’ve been (rental) house hunting for the last couple of months. I don’t really know anything about real estate investing, but I’ve been trying to read up (John T. Reed’s Best Practices for the Intelligent Real Estate Investor is my favorite so far).
It’s been interesting seeing the market and how homes are priced.

Factors which the market seems to price really efficiently include:
-Square footage
-Neighborhood
-Amenities/Finishes
-View
However, there are a lot of factors that (in my experience) have very high quality of life implications and basically don’t seem priced in at all.
Read 19 tweets
22 Apr
The way you get rich has changed as technology has evolved.

"In 1960, most of the people who start startups today would have [[gotten a job]]. You could get rich from starting your own company in 1890 and in 2020, but in 1960 it was not really a viable option."
The labor market, like any other market, is dynamic.

Just because something worked for a prior generation, doesn't mean it will work for the next.
If anything, it is less likely.

In financial markets, the best performing strategy over the past 20 years is usually one of the poorest performing strategies over the next 20 because it gets crowded and returns deteriorate.

The same is true of the labor market.
Read 5 tweets
20 Apr
Love this analogy: product management (or just company management) is like running an options book

In both cases, you have to think about your "portfolio" level exposures.
Too many crazy initiatives is like buying a bunch of exotic deep OTM options.

Even if it's positive expectancy long-term but you're likely to bleed to death before you find out.
Too many predictable, boring initiatives is like being a systematic vol seller.

It works well for a long time until disruption theory plays out and you get smoked all of a sudden.

Nokia/Blackberry getting smoked by Apple probably a good example.
Read 4 tweets
20 Apr
Great podcast from @AttainCap2 and @rcmAlts with Roy Niederhoffer.

They touch on
-Why US stocks looked so unattractive just before their largest bull run
-The danger of stock/bond correlation
-The Sharpe ratio of your fire insurance

podcasts.apple.com/us/podcast/mak…
"In 1983 when I had some money from my computer software business, I look back at Track Records and the stock market was completely unchanged in real terms for a dozen years.

And I just like why would anybody invest in the stock market? I want to be in the bond market."
"My whole career, until recently, has been spent in a falling rate environment. And it's only now that we're starting to see the potential for bonds and stocks and moving the same direction.

And that throws off this whole 60/40 idea that you should have stocks and bonds and...
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12 Apr
1/ One lesson I learned from sports is that the best way to be good at a thing is to do a lot of that specific thing.

This seems very obvious but often people don't do it.
2/ In the case of sports, lifting weights and being in good shape can help you be good at basketball, but the person who is less in shape but plays a lot of basketball will be better.
3/ I went to high school with a few people that went on to play D1 sports (one went pro) and none of them really spent a lot of time in the weight room, but they practiced their sport a ton.
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10 Apr
I had a friend in college that I used to get in big debates with about all sorts of topics, mostly religion, economics, and evolution.

He was religious, had studied Austrian economics, and doubtful of natual selection.

I was on the opposite side of nearly all those issues.
We had very different view points but it was really rewarding to talk with him because, though I disagreed with him, his opinions were well thought out.

If anything, it was frustrating because I wanted to “prove” I was right and never could.
We are still friends and it’s been interesting that over time, our views have somewhat converged or at least grown more nuanced and moderate.

I appreciate the role of religion more and have a deeper appreciation for the Austrian school.
Read 6 tweets

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