How To Avoid Blowing Up Your Portfolio

During their latest episode of the VALUE: After Hours Podcast, Brewster, Taylor, and Carlisle discussed How To Avoid Blowing Up Your Portfolio. Here’s an excerpt from the episode:

Jake: A few approaches that make sense with respecting all this uncertainty that can exist with how fat are the tails. One school of thought is aim for extreme diversification where you just try to own everything and get non-correlated return streams as much as possible, and then let the chips fall where they might. I’m not as attracted to that, because you end up with what seems to me like you own a lot of expensive stuff also a lot of the time. For better or worse, it’s hard for me to get over that mentally. And then I think the biggest thing that tells me is, you have to be able to play out your hand, no matter what markets do.

So, markets go crazy, they’re going to go crazy. Economics can go crazy, our economies can go crazy. No thing should be able to force you to have to liquidate, to have to margin call whatever it is that could blow you up. Otherwise, if you keep a little bit of cash, you own businesses and you understand the businesses that you own and they’re not existentially threatened for the most part. There’s not a whole lot of ways that you can really screw it up too too bad, I don’t think. As long as you’re not overpaying, as long as you know what you own, don’t stay away from leverage as much as possible, including inside the companies and your portfolio. And if anything, I think you become somewhat antifragile then to the world and you’re then seeking opportunities when they do arise. So, at least that’s my biased version of it.

Tobias: Yeah, I like that approach. [crosstalk]

Bill: I’m probably balls long one factor and don’t know it and I’ll get wiped out because of it. Thanks.

Jake: [laughs]

Tobias: You’ve definitely got some blind spot in there somewhere. We all do. You just don’t know what it is until after the fact and then you’re like, “Yeah, that was obvious.”

Bill: Not enough crypto.

Tobias: Not enough crypto. Exactly.

Jake: Yeah.

Tobias: Something like that.

Jake: Or shitcos.

Tobias: Not enough of– [crosstalk]

Bill: I own a lot of shit codes. They’re just not the ones that catch a bid.

Tobias: The wrong ones. Yeah.

Bill: Yeah.

Jake: How did you miss?

Bill: I don’t know.

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