From Business Insider · Theron Mohamed · · 1m 20s
Hedge the disaster, then bet big
Mark Spitznagel made his name insuring portfolios against catastrophe, and he thinks the same logic should run your career and your life.
In brief
Mark Spitznagel made his name insuring portfolios against catastrophe, and he thinks the same logic should run your career and your life. Protect yourself from the losses you can't recover from, then take real risks with everything else. Originally reported by Business Insider.
Playing defense isn't enough
Spitznagel built Universa to shield clients from rare, extreme crashes. Over coffee in London he said pure caution is a losing way to live.
Bet your beliefs
He calls under-betting the biggest mistake people make. A good hedge isn't just survival insurance, it frees you to be more aggressive everywhere else.
“You need to be exposed, you need to bet your beliefs.”
The compounding curse
Buffett in his 20s felt a haircut cost him $300,000 in forgone returns. Spitznagel thinks that math can quietly eat a whole life.
“What's the point of compounding if you're not around to see it?”
Big losses, not small ones
Lose 50% on a position and you need a 100% gain just to get back to flat. The climb out is what kills you, not the drop.
“It's not just that it kills you, but it goes down so much, it takes forever to crawl out.”
Size your bets like Kelly
He points to the Kelly criterion for sizing bets so no single one can wipe you out, and says people should run their lives by it, not just their portfolios.
“You can't let your losses take you out of the game.”
His best investment is goats
Spitznagel ranks his Michigan goat farm above yachts, planes and sports teams. Making milk and cheese keeps him near his family and thinking in seasons.
“That's the easiest answer in the world. It's not even close.”
What to remember
Protect yourself from the losses you can't recover from, then take real risks with everything else.
