Leverage Your Finance
Rich and young with shares is only possible if you do this
I am not lying to you if I get acquaintances telling me that they have contracted passive funds every week. Their way of justifying it is “it has grown 80% in x years”, “you always make money in the long run,” etc.
On the one hand, I think these are end-of-cycle comments. On the other hand, if we all do the same, we are NOT all going to retire with 30 years and a portfolio full of money.
I have already defended many times the position of going against the markets (or contrarian investing). If you lose the best 20 days of the S&P 500 over the last 30 years, your investment return will be negative. And, if you invest for what has risen the most (as is the case of the indices), you will most likely have already lost at least 10 of those 20 days, and your returns will be mediocre like that of the average investor.
If we want to obtain extraordinary results by investing in stocks, we must go against the market. Of course, the stock markets are not a zero-sum game, but it is clear that they are not an infinite-sum game either.
These extraordinary results are more critical now than ever. It may not mean anything if I tell you 6 and 5 separately. But if I tell you that current inflation is 6.5% per annum, it’s a crying matter. I am sure that if you do nothing, your savings will be consumed faster than a piece of candy at the door of a school.
Among the extraordinary actions that we undoubtedly like to carry out are:
Those who only see the news headlines will think that it is a purely speculative world, and in some aspects, I agree with them. But I have it on good authority that this Decentralized Finance (or DeFi) thing makes a lot of sense.
They are achieving returns of 10–40% passively as possible. Of course, it will not be possible forever. As more players enter the market, these returns will most likely decrease. But being a disruptor and understanding four basic concepts will put you in the top 1%.
Asymmetric Investment (Tail Risk)
Financial derivatives give us an incredible range of possibilities for leverage. We can design strategies as diverse as possible and achieve passive income with cryptocurrencies, regardless of what the market does.
We have seen many times that a normal distribution does not govern the market, which means that we are exposed every few years to strange events (outliers). Being systematically exposed to them can make us a lot of money.
This protection or hedge can be achieved by investing against the markets. What is necessary is to know how and when to monetize these hedges.
As a general rule, investors buy options and wait until they are in the money or even reach expiration to monetize them. It is tough to make money remaining until expiration as the time decay evaporates the value of our options.
The performance of investors who have done a passive strategy without monetizing their hedges has seen their returns even worse than a Buy and Hold strategy on the S&P 500. However, a robust system of monetizing these hedges can give us an edge over the market. The clear example we can find is the performance of options during the end of the 2007–2009 crisis.
This monetization generates “buying on dips” opportunities. As volatility subsides, the equity market tends to rise, and the risk premium embedded in the equity market also falls to normal levels. By rolling the profits from the tail hedge into the underlying equity market, the investor can turn a defensive strategy into an offensive system by taking profits from hedges, thus harvesting the benefit of the increased risk premium.
Of course, there are many more possibilities, such as investing in start-ups, creating your own online business, etc. But the risk/reward is infinitely higher than with the previous examples.