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Some brief thoughts and resources for managing and investing capital.

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Last updated on March 21, 2022

Overview

My financial framework consists of four layers:

  1. Personal Finance (You can only invest what you make and keep)
  2. Macro Trends (Historical, Generational, Societal, Economic, Technological Trends)
  3. Portfolio Construction (Positioning your capital to benefit from those macro conclusions)
  4. Position Entry Methods

Personal Finance

Personal finance is the foundation for everything. Get good at accumulating capital, before trying to get good at growing capital. 

Because it’s hard to mentally focus on growing capital until one’s personal finance habits are on mental autopilot, I don’t recommend spending effort on investing until you’ve established a systematized and habitualized process for managing and tracking monthly income and expenses.

Personal Finance Resources

  • Books
    • Money by Tony Robbins (Personal Finance, Budgeting, Investing) I’d strongly encourage you to read this first. It’s big, but an easy read and very well done. You can also jump around to the chapters that are most helpful now. Specifically, it provides a solid breakdown of how the advisory industry works, how advisors and funds are compensated and how those underlying costs impact portfolio performance over time. At a minimum, it will arm you with an understanding of the industry and what questions you should be asking. It also covers every aspect of personal finance, portfolio construction, etc. It’s a great 360 picture.
    • Rich Dad Poor Dad by Robert Kyosaki (Personal Finance, Investing, Real Estate) this really the personal finance bible.
  • Blogs
    • Mr. Money Mustache is my favorite personal finance / financial independence blog. Start with the oldest post and read your way forward.
  • Tools

Macro

The aim of macro is to understand what’s happening at the base, operating system level of society and the economy. These base layers are shaped by multi-decade cycles and trends which create multi-decade seasons / environmental currents that cause certain asset classes to perform better than others for long periods of time.

This level is all about understanding the constellation of long-term trends and cycles across several areas. To name a few:

  • Generational Cycles
  • Societal/Political Cycles
  • Economic Cycles
  • Monetary Policy Cycles
  • Technology Trends

Macro Resources

Portfolio Construction

The goal of a portfolio is to position your capital to (1) benefit if your macro thesis is correct and (2) mitigate risk exposure in the event your thesis is wrong.

Fewer, Better, Bigger

My approach to portfolio construction is optimized for quality of life. For me, that means aiming to take fewer, better, and bigger positions that I adjust infrequently.

  • Fewer: I aim to hold less than 5 open positions at a time
  • Better: I aim to hold things that…
    • I’m highly educated about and genuinely interested in
    • Express my macro thesis
    • Offer a highly asymmetric risk/reward
  • Bigger: Small positions have the same mental-energy cost as big positions. So I aim to only take large enough position sizes to meaningfully compensate for the mental-cost of managing a position (without violating my risk tolerance rules).

I designed my approach this way so that I don’t need to manage my holdings on a daily basis and can instead spend the majority of my time reading, studying the macro topics I’m genuinely interested in.

Disclaimer: I tend to concentrate my bets more than the conventional “diversification” wisdom. Where someone should be on the scale is a personal choice and is dependent on one’s goals, level of energy they want to invest in research, experience level, age etc. Generally, I subscribe to the adage “Concentrate investments to create wealth, diversify to protect it.”

Asset Classes

The macro-environment analysis determines at a high level how much exposure I have (if any) to different assets classes. Here’s how I break out the various asset buckets:

  • Liquid Assets (easy to quickly convert to cash)
    • Cash (including FX)
    • Stores of Value (Bitcoin, Gold, Silver)
    • Public Equities (Stocks in businesses I have no direct involvement with)
    • Bonds and Treasuries
    • Commodities
    • Trading (Capital set aside for short-term, speculative bets) — Advanced Only
  • Illiquid Assets (difficult to quickly convert to cash)
    • Private Equity (Equity in businesses I have direct influence over the outcome)
    • Real Estate
    • Fine Art

Other Notes

  • It’s important to consider portfolio construction in terms of volatility-adjusted returns — aka how much of a roller coaster ride are you willing to endure in for the opportunity to participate in longer-term gains.
  • One’s ideal % cash allocation really depends on how you construct the rest of your portfolio. For example, over the last 10 years a 1% Bitcion 99% Cash portfolio beat a 100% S&P portfolio, and did it with less than 1% account risk. 
    • Plus, it’s important to remember cash represents opportunity — being fully allocated prevents you from taking advantage of opportunities that might arise along the way. So you want to be really clear about the opportunity costs and tradeoffs associated with how much cash you keep on the sidelines (especially during this season when the macroeconomic environment is pretty foggy).

Position Entry Methods

Dollar Cost Averaging

Dollar-Cost Averaging is my preferred method for establishing long-term positions. It reduces volatility and helps avoid the pitfalls of timing the market. 

Technical Analysis (Advanced)

Disclaimer: Attempting to time the market is very difficult and fraught with pitfalls. I don’t recommend new investors attempt to trade. One way to think about it: Trading is essentially a day job — and requires serious daily effort and study. So if you already have a day job, don’t trade.

I use technical analysis to determine when to buy/sell something (and at what price). At the highest level, I use it to determine when to begin dollar-cost averaging into a position. I also use it to opportunistically add to positions manually.

Every position has an opportunity cost. I use technical analysis to minimize the amount of time I hold positions before I know whether my thesis is correct. Simply, I want to know I’m right or wrong as quickly as possible. I want to avoid (1) being “right, but early” where I’m stuck holding a losing position for a longer period of time before the trend aligns with my macro view, and (2) being “wrong, and late” where I’m holding a loser lower and lower with no plan for exiting.

In practice, optimizing for time vs absolute lowest price generally means I aim to buy things after a bottom, on the way up vs. buying something on the way down.

Technical Analysis Resources

  • TradingView is the best charting platform
  • Aksel Kibar is prob the best classical chartist there is
  • CryptoCred has some good entry-level Technical Analysis lessons on YouTube

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