99/1 Strategy Applied To Investment
Improve your life by 32% CAGR
We are aware that all good (and bad) things in life come from asymmetric bets. The day you understand this, your view on money changes exponentially. Pareto made his famous 80/20 rule, although we believe that being more precise, we could call it the 99/1 rule:
1% of businesses have the same capitalization as the remaining 99% of companies.
1% of F1 racers are paid the same as the rest of the pit lane.
1% of works of art are worth the same as the remaining 99%
1% of the world’s richest people own 85% of the world’s stocks
1% of our personal relationships bring us 99% of our happiness.
20' of sport at very high intensity per day produces changes in our body far superior to those of walking for 4 hours.
When we refer to investment terms, this rule is still reliable. Many people are still wasting 99% of their time on getting a 1% extra return when it has been proven that having a portfolio invested 100% in index funds is still a solid foundation in the long run. Still, many investors will continue to try to be better than the rest of the world and waste hours and hours picking the best companies.
To reach this conclusion, many people "invest" a large part of their lives and their money. We have told you before about several friends who dedicate a large part of their life to cover companies in different investment banking companies and then invest the bonus they receive in index funds.
However, with this approach, you know that the expected returns will never be more than 10% over the long term (70% Developed Countries; 30% Emerging Markets):
If your goal is to retire at 65 rich, this strategy can be a great option as long as your savings capacity is (very) high. For example, if you are able to save $2k per month, you could retire with $12M (we assume 43 years of investment at 9.5% and an initial investment of $10k).
But if you want to be exposed to black swans, this is not enough, as you will never, I repeat, never, be exposed to them. Well, yes, you will be exposed to negative black swans (60% market drops, for example).
That is why many smart investors choose to invest large percentages of their portfolios in index funds and the rest in asymmetric bets. In Taleb's case, he invests 80% in low-risk investments and 20% in high-risk investments.
In the above case, if we put a black swan at 20%, as has been the case with Bitcoin (and it has fallen 60% from its highs), the return goes from 9% to 32% per year (60% Developed Countries; 20% Emerging Markets; 20% BTC):
The sole purpose of the subscription is for you to come to understand this asymmetry scenario and invest your time wisely in the things that really make sense: family, relationships, experiences, etc.