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They key to making money in the stock market is to have a good balance between risk & reward. Here is what I plan todo. Have 80% is something that is very saf
by max_ 3y ago
They key to making money in the stock market is to have a good balance between risk & reward.
Here is what I plan todo.
Have 80% is something that is very safe like 1 Year treasury bills that appreciate by like 5% per year.
The remaining 20% should be put in high-risk, high-return instruments like BTC (or other Coins you see potential in), Small Caps & Midcaps of companies and these tend to always appreciate way more than the index or large caps in a bull market.
- Be wear of financial euphoria i.e only buy in a bear market like this one and never buy in a bull market (you should be selli in bulk markets)
- Keep your quantity of shorting to Zero, statistically the market is biased to go up. The maximum you can make from shorting something like BTC is 100% profit, by going long how ever BTC or other stocks can easily grow by more than 100% like how BTC grew by 800%
I prefer this to index investing because the index can tank by 30% in one day and if your 100% in the index and the timing is unlucky i.e your getting ready for retirement, you may not be able to wait in the stock market to recover from these losses.
Being unable to wait for the recovery from losses is referred to as reaching an "uncle point"
The barbel-strategy I have described above of 80% T Bills & 20% high risk, high returns. Trys to eliminate these uncle points.
There are really only two solutions to risk management, either you reduce your, investment in risky assets or you invest 100% and buy insurance, otherwise your just a sitting duck for a financial meltdown.
- ezero 3y agoCan you reference which major index fund has tanked 30% in one day? To my knowledge Black Monday in 1982 was the biggest single day dip in the stock market, where the S&P 500 lost about 20%. See: https://en.m.wikipedia.org/wiki/List_of_largest_daily_changes_in_the_S%26P_500_Index https://en.m.wikipedia.org/wiki/List_of_largest_daily_change... Also after these dips, did the market recover and how long did it take? Imo index funds are where you put your money away for decades. Over those years, what is the average gains per year? There is nothing wrong with accounting for extreme events and that’s why all investment could be risky. But I am challenging your narrative.
- max_ 3y agoYou are absolutely right that the largest single day drawdown for the S&P was about 20%. But my message is that we should not be sitting ducks for these extreme risks. There is no known method to accurately know the exact maximum drawdown that a security can get in 1 day. Days aside. The drawdowns can be worse than we can imagine over several years. For instance people that bought the the S&P during 1929 broke even at around 1955. No profit, just breaking even. A time span of about 26 years [0] [0]: https://www.macrotrends.net/2324/sp-500-historical-chart-data https://www.macrotrends.net/2324/sp-500-historical-chart-dat...
- ezero 3y agoFirst of all, those were during the World War years so the context matters a lot. Overall, if you had just said to only put your money in lower risk stuff vs index funds that would make sense to me too depending on how risk averse you are. But to put 20% in something like bitcoin just seems like a weird mix of safety and gambling. I would like to see some strong numbers backing this up in the past 50 years or so where this would be more profitable AND less risky compared to the index funds.