Unlocking Massive Returns with Minimal Effort
Unlocking Massive Returns with Minimal Effort
The Hidden Truth About Investment Success
One of my main convictions is that there is little correlation between the effort put into investing and the results achieved.
It took me many years to realize this, but a few weeks ago, I was going through my old financial notes and found complex investment strategies that I had studied in detail. All of them used very obscure terms like moving averages, resistances, supports, something called candlesticks… I also looked at how these strategies would have performed against the S&P500 and saw that I would have gained 5x (in the best case) by doing nothing, simply leaving my money invested in an index fund and not touching it.
Many will ask me, if this is the case, why do I propose an asymmetric portfolio? Very simple, we are living in a period of history that has little to do with the global picture. The prosperity we've experienced since 2008 is unprecedented and will eventually come to an end. The global economy has been in a phase of sustained growth, supported by expansive monetary policies and unprecedented technological growth. However, these periods of prosperity are not eternal and, in fact, can create a false sense of security among investors.
The day this happens, liquidity will be scarce, and everyone will scramble for it. This is without considering that the debt level is at all-time highs in the US. Public and private debt has reached unsustainable levels, and when the economy enters a recession, the ability of governments and businesses to meet their obligations will be seriously compromised. This scenario could trigger a series of massive sell-offs in financial markets, creating a downward spiral that could result in significant losses for those unprepared.
However, as with everything in life, I believe we should seek a middle ground and leverage asymmetric bets. Asymmetric bets are those where the potential gain far outweighs the risk of loss. These opportunities allow investors to reap large benefits with a relatively small investment by taking advantage of market imbalances.
These bets are such that if they go well, they will compensate for all the others. We have many examples of this in society. Our friend Jeff Bezos, for instance, launches products and features quickly to the market to test them. This agile approach allows Amazon to quickly identify which products have the potential to be successful and which do not, minimizing losses and maximizing gains.
Many supermarkets launch products in certain stores, measure their adoption, and if they are bestsellers, they stay. This method allows companies to minimize the risk associated with launching new products by testing them in a controlled environment before committing to a broader distribution.
Furthermore, this is how Venture Capital works: they invest in many startups and wait for one of them to succeed, while 50% lose all their value and 40% disappear within a few years. Venture capital funds understand that most of their investments will not generate significant returns, but a few successful investments can compensate for all the losses, generating enormous profits.
This is what led us to focus on an asymmetric portfolio, the best of both worlds: being almost always invested and making very few movements, betting on very OTM options with a small part of our portfolio and the rest in uncorrelated, low-risk assets. This approach aims to maximize high-yield opportunities while minimizing overall risk, offering a robust strategy to face future financial uncertainty.
An asymmetric portfolio combines the stability of passive investments with the potential for high returns through calculated bets on high-risk assets. By maintaining a significant portion of the portfolio in safe and low-risk assets, the principal capital is protected. Meanwhile, the small portion allocated to high-risk investments offers the potential to generate extraordinary returns that can transform the overall performance of the portfolio. This approach is not only practical but is also designed to thrive in a volatile economic environment, providing a solid foundation for long-term financial growth.
This is extremely important because, if you don't know, money grows continuously, and any strategy that does not exceed 10% will result in losing money. Although this may seem like a high number, it is not. A number below that will create more inequality between you and the wealthiest. They have understood the game, and here’s why I say so.
Revaluation of the S&P500 since 2008:
Annual liquidity rate of the FED:
Everyone can draw their own conclusions, but as long as you do not reach that value, you will be losing purchasing power, and this only generates social inequality. More on this in another newsletter.