Thread by @AlamedaTrabucco

Let's look at two investors, Adam and Beth. Both are 25 years old, both make $200k/year (lump sum) and expect to keep doing so for their careers (not realistic, but let's just use that for now). Adam invests it all in a 5%/year fund, Beth's fund is 50/50 to make +30% and -10%.

https://twitter.com/AlamedaTrabucco/status/1402755585175539712

By age 60, Adam will always have around $20m put away (ignoring taxes and expenses or whatever, but this is just a comparative exercise so it's OK to ignore thise) -- there's no uncertainty here.

What about Beth? Her EV on earnings each year is higher than Adam's, of course, but let's dig deeper. Let's look at her distribution of outcomes by age 60.

One natural question: what are the chances she has more money than Adam does?

I ran a simulation to answer that (screenshot attached). She has more money than him 83% of the time -- but look at that EV! Nearly 3 times as high as Adam's (that's actually possible to get without the simulation because of linearity of expectation, but 100k runs is enough).

So trading off a decent chance per year at loss for 2x the annual EV will be worse 1/6 of the time, but WAY better a ton of the time, too. Seems like a pretty good investment to me! And her probability to end with less than $10m is just 3%.

(Note this all assumes non-adapting strategy and non-diversification, both of which Beth can and probably will do -- adapting lets her do better stuff as it comes up, diversifying makes risk of ruin way lower).

Let's look at something more extreme -- each year Beth has a 50/50 chance to double up or lose 50%.

Now she's a multi-billionaire a lot of the time, but also ends up with less money than Adam more than half the time! In EV, this is great.

And I think it's hard to argue that she should not do it for at least a lot of her life. Til 60 is maybe extreme, but note she can always just allocate 1/10 of her portfolio to it, or find 10 unrelated things like it and do them all.

(Or she can spin up a 2/20 fund to do it :P)

Overall, I think it's easy to write off a risky bet because sometimes you lose a lot of money and people are naturally loss-averse. But you get to make more than one bet in your life, and if your bets are good on average, even if just barely, you'll *usually* win long-term.

"BTC is risky -> no one should hold BTC until we somehow regulate it and ... make it less risky" is an infuriating narrative to me not because it's anti-BTC but because it ignores what makes an investment good.

Everyone, please: make your investments good!