THE SWISS ARMY KNIFE
Always in your pocket
THE ULTIMATE WEAPON
DON'T BE LIKE THEM
Everyone talks about gains.
But big expected returns are worth nothing if the risk is out of proportion.
Smaller returns is fine if the risk is commensurately low.
Think beyond mere past returns to see forward
THINK RISK-ADJUSTED RETURN
THE SECRET WEAPON
Getting a sense of risk-adjusted return is not natural.
But there is a simple trick that can change everything:
Know ONE THING very thoroughly,
Then benchmark everything else against it.
This Risk Reference Asset (R.R.A.) is you universal tool
THIS IS YOUR SWISS ARMY KNIFE
Complexity is your enemy
ABSOLUTE CLARITY WILL SET YOU FREE
THE 5 CRITERIA
Your Risk Reference Asset must satisfy 5 criteria
1/ Passive: components and proportions determined by transparent, static rules
2/ Diversified: any concentrated bet can be compared to this
3/ Liquid: both at the asset level, and the components level
4/ Transparent: data about components must be easily accessible
5/ History: long enough to include relevant events such as the 2008 GFC, or the Internet Bubble.
Based on those criteria, your own preferences and parameters, such as your base currency, choose your Risk Reference Asset.
Your Swiss Army Knife is personal to you
BUT ITS USE IS UNIVERSAL
ANALYTICAL TOOL
You can use your Swiss Army Knife against any particular asset
Any element of risk relative to your RRA must be compensated by an element of expected return.
Less liquid assets means you need more return.
Less transparency and shorter history means you need more return.
More concentrated means you need more return.
More complex means you need more return.
Spend time to study your Risk Reference Asset.
Study its entire history.
This is your universal risk reference
KNOW YOUR R.R.A. THOROUGHLY
"Risk comes from not knowing what you’ve been doing"
Warren Buffett
INVESTMENT TOOL
Do a DEEP DIVE to calibrate you risk accurately
You will know how much risk you should take in all serenity
Then, if you haven't filled all your risk capacity with the active decisions you've made using the 3D Box,
Use your R.R.A. to take more risk if you want
Maximize your gain
WHILE STAYING IN COMPLETE SECURITY
USE YOUR R.R.A. IN YOUR 3D BOX
Every active decision is the target of a 3D Box
Benchmark the specific risk of the particular asset you're looking at
Against your universal reference
Make each decision a perfect decision
Build your process like a fortress
SWIM IN MONEY LIKE A FISH IN THE SEA
