The Ultimate Guide To Manage Volatility
The 5 commandments by which managing volatility can make you rich
The best description of our long stay in the markets comes from asymmetric bets, i.e., we try to take advantage of rare events, events that tend not to recur frequently but therefore have a high return when they do occur.
Fund managers always make their models and, therefore, their valuations by looking at the past and not the future. They rarely look at statistics and fat tails. This has always interested us because it makes the market full of inefficiencies.
We try to make money infrequently, or rather, we try to outperform the market infrequently, simply because anomalous events are not fairly valued, and the rarer the event, the more undervalued its price will be and the more we will benefit from having bought it.
On many occasions, this revaluation can reach four figures in percent, and in scenarios such as 1987, 2008, or some cryptocurrencies, it can reach more than five figures.
Just think, if you manage to capture such an event, you have secured your financial freedom and that of your loved ones for at least a couple of generations.
$10k in a Covid magnitude event, would become $500k.
$10k in a 1987 magnitude event would become $2M
$10k invested in Ethereum in 2014 would become $30M.
In addition, being exposed to this type of cheap rare event makes for a very unexposed part of the market. This gives a clear advantage over other investors who want to profit from anomalous events, which already, for them, are not so much.