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Building a portfolio that survives the bear market.
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1/ Intro
Bears are vicious creatures, you blink for a second, and they can rip away any gains you had with a single swipe.
In this thread, we'll discuss the three genres of assets and how to build a portfolio that can not only survive the bear market but thrive.
Bears are vicious creatures, you blink for a second, and they can rip away any gains you had with a single swipe.
In this thread, we'll discuss the three genres of assets and how to build a portfolio that can not only survive the bear market but thrive.
2/ Asset Genres
Whether you're talking about stocks, real estate, commodities, etc., they all broadly fall into three broad archetypes that denote their behavior within a complex system:
- Fragile
- Robust
- Antifragile
Whether you're talking about stocks, real estate, commodities, etc., they all broadly fall into three broad archetypes that denote their behavior within a complex system:
- Fragile
- Robust
- Antifragile
3/ Fragile
These types of assets do what it says on the tin: they break when there's any volatility in their environment.
Some examples of this category might include highly leveraged positions, speculative stocks, and overvalued assets.
These types of assets do what it says on the tin: they break when there's any volatility in their environment.
Some examples of this category might include highly leveraged positions, speculative stocks, and overvalued assets.
4/ Robust
People perceive this as the opposite of fragile - something that doesn't break regardless of volatility. These assets can withstand shocks and stressors and can provide a stable return over the long term.
Examples might include index funds, real estate, stocks, etc.
People perceive this as the opposite of fragile - something that doesn't break regardless of volatility. These assets can withstand shocks and stressors and can provide a stable return over the long term.
Examples might include index funds, real estate, stocks, etc.
5/ Antifragile
The true opposite of fragility - these are assets that GAIN from volatility, uncertainty, and disorder.
This can be your own small business venture that adapts to new niches in the market or instances where the potential downside is capped, but the ceiling isn't.
The true opposite of fragility - these are assets that GAIN from volatility, uncertainty, and disorder.
This can be your own small business venture that adapts to new niches in the market or instances where the potential downside is capped, but the ceiling isn't.
6/ Tossing Coins
One of the best situations to be in as an investor is as follows:
- Heads, you lose a small amount of $
- Tails, you win a lot
When compared, the risk and potential payoff must be asymmetric, which is why something like playing the lottery is just gambling.
One of the best situations to be in as an investor is as follows:
- Heads, you lose a small amount of $
- Tails, you win a lot
When compared, the risk and potential payoff must be asymmetric, which is why something like playing the lottery is just gambling.
7/ VC Model
VCs natively have this antifragile investment model. They place comparatively small bets into business ventures that can have asymmetric returns.
Book publishers nowadays do the same thing - publish a bunch cheaply, and one of them will end up being Harry Potter.
VCs natively have this antifragile investment model. They place comparatively small bets into business ventures that can have asymmetric returns.
Book publishers nowadays do the same thing - publish a bunch cheaply, and one of them will end up being Harry Potter.
8/ Hype Kills Value
Due to the laws of supply and demand, if there is excitement for something, chances are that it's overvalued, as the excitement translates into high valuations.
Instead, go one level above, and go with the force that is supplying the mania.
Due to the laws of supply and demand, if there is excitement for something, chances are that it's overvalued, as the excitement translates into high valuations.
Instead, go one level above, and go with the force that is supplying the mania.
9/ Jeanetic Disorder
In the 1848 California gold rush, there was mainly one type of person who earned money - and it wasn't miners. It was the general store owners, selling pickaxes, shovels, and jeans, who then pivoted to selling everyday items to people when the mania ended.
In the 1848 California gold rush, there was mainly one type of person who earned money - and it wasn't miners. It was the general store owners, selling pickaxes, shovels, and jeans, who then pivoted to selling everyday items to people when the mania ended.
10/ Putting it Together
Do not put money in fragile things. Make money in antifragile ventures, & then safeguard a portion of the earned capital over the long term in robust investments.
In this way, you maximize all the useful aspects of finance while mitigating the bad ones.
Do not put money in fragile things. Make money in antifragile ventures, & then safeguard a portion of the earned capital over the long term in robust investments.
In this way, you maximize all the useful aspects of finance while mitigating the bad ones.
11/ Conclusion
Rather than thinking about asset types, like stocks, real estate, & digital assets, think in genres.
Real estate is not always safer than stocks.
It's worth thinking about financial instruments based on their end effects rather than the boxes we've put them in.
Rather than thinking about asset types, like stocks, real estate, & digital assets, think in genres.
Real estate is not always safer than stocks.
It's worth thinking about financial instruments based on their end effects rather than the boxes we've put them in.
If you enjoyed this thread, please let us know in the comments, and subscribe to @axotrade 🧵
For something more in-depth, make sure to check out our ongoing History of Finance series:
axo.trade/newsroom/posts…
For something more in-depth, make sure to check out our ongoing History of Finance series:
axo.trade/newsroom/posts…
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