To The Moon

While hedge funds may blow up on a regular basis, they have an incentive to do so.

Hedge fund managers make money based on the returns they generate for their investors. And they attract money based on outsized returns that attract attention. Just beating the market by a narrow margin each year isn’t enough.

Put it this way, it’s in a hedge fund’s interest to bet on “Red” at the roulette table and have a 49% chance of doubling their money and a 51% chance of going bust. The upside of having a 100% return year is potentially 10x-ing the size of your fund. Go bust, and they can start over again.

Our personal portfolios don’t work that way.

But avoiding going bust is relatively straightforward.

Avoid Leverage

Nearly every investing horror story starts with leverage.

Margin is what wipes out investors.

Borrowing against a house to invest is a bad idea.

Taking out a personal loan or student loans to trade doesn’t usually end well.

Leverage is what destroys investors.

Admit You Might Be Wrong

I get a lot of things wrong.

But it took me 20+ years to realize that being wrong is OK, and as long as I’m not too concentrated in an investment I’m wrong about, it’ll work out.

The asymmetric upside of any winners will overwhelm the few losers I am wrong about.

But many investors get this part of investing wrong.

They go all-in on Tesla (that worked for many).

Or they go all-in on space stocks, or quantum, or nuclear.

Being right can be life-changing, but being wrong can be devastating if an investor is too concentrated.

And even those who win a high-risk bet often double down again and again, eventually getting it wrong.

Understanding that we might be wrong about any given investment thesis is a superpower. Use it!

Celebrate When Other People Win, But Avoid FOMO

Fear of Missing Out (FOMO) comes when we see others winning and get jealous.

FOMO clouds judgment and leads to irrational decisions.

This is why people buy hot stocks at the top and sell at the bottom.

It’s OK if others win.

Play your own game.

FOMO should be avoided at all costs.

We Need to Survive to Thrive

When stocks fall, it’s hard to keep a level head and understand that the market will eventually go higher.

And the 7.2% drawdown in the Nasdaq 100 is nowhere near the 71% drawdown in 2001-2003 or the 52% drawdown in 2009.

Surviving those moments is the only way to see the long-term gains you see below (and hopefully better).

We need to survive the bad times to thrive in the good times.

If the market does reach a rough patch over the next year or two, the answer isn’t to leverage and buy stocks with no fundamentals due to FOMO.

The answer will be making simple, sound decisions that seem downright boring.

It’s buying $Alphabet(GOOG)$ $Alphabet(GOOGL)$ for a 15x P/E multiple in spring 2025.

It’s buying $Apple(AAPL)$ for a 10 P/E multiple in 2016.

Don’t blow up in bad times, and you’ll be set to thrive in the good times.

Even the wealthiest people I’ve met don’t always follow that simple mantra.

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