Title: Barbell Investment Strategy Explained - Travis.vc
Description: Maybe you've heard "the barbell strategy" mentioned in passing before. It's a very simple concept, with big implications in how you may decide to deploy
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Text content: Barbell Investment Strategy Explained - Travis.vc                                                                                      Skip to content         Home Newsletter     Menu   Home Newsletter                        The Barbell Investment Strategy             The Barbell Investment Strategy             An investment portfolio strategy close to my heart     Maybe you’ve heard “the barbell strategy” mentioned in passing before. It’s a very simple concept, with big implications in how you may decide to deploy capital. I know embracing it changed a lot for me.  So, just what is the barbell strategy?  The barbell strategy of investing is, in essence, a concept used to manage risk, specifically around managing risk of the unknown, of wipeout, and of different risk classes. It was popularized by Nassim Taleb in his book “The Black Swan”. The general idea is that you should split your investing between very low risk, and very high risk, asset classes… but that you should avoid the “middle ground”. The low risk assets would provide a very dependable and lower risk return, while the high-risk asset classes would frequently fail, but provide massive returns when the bets work out.           There are lots of ways to think or structure this, and there is not just “one way” of doing it all… the strategy can be customized to just about any type of investor. Some barbell portfolio examples90% of your portfolio in shorter-term government bonds, 10% in venture capital.Splitting your bonds between short term and long term, but avoiding middle-duration bonds. Investing mostly in blue-chip stocks, but reserving some for IPOs There are infinite ways to think about it, but I assume you get the point from the examples above. Personal examplesBarbell investing is also fractal, meaning the concept works just as well on the high-level as it does on the microscopic one. So you can barbell within a single asset class, as long as you’re also barbelling in other assets as well. Take private company investing, something that I do a lot of myself. I barbell my dedicated funds for private companies by investing ~ 90% into stable and diverse cash-flowing businesses, and 10% into moonshot venture capital investments. An example might be investing the 90% into a few different small and stable businesses (like a plumber, a marketing agency, and small SaaS company), and the 10% into something wild, like a company trying to cure HIV.I might add, that the example used above is real. The idea being that if the VC investment works out then I see a 100+x return, but assuming it doesn’t (as it probably won’t) then the stable businesses will keep the portfolio safe until I can make another big bet.  Simplification:People can take the concept and apply it however they want, but I have a few personal ways that make sense to me. The safe side of the barbell:Do I always have liquidity?Can the value of the assets not fall too far?Do I always have cash-flow and can ignore asset prices? The risky side of the barbell:Can hitting a win on this investment pay for all the other losses, plus much more?Is this a very asymmetrical bet? Is the upside far larger than the bet size? Avoiding the middle:Avoid those deals in the middle-ground. If it seems like “an easy 3x” it’s susceptible to wipe-out, and probably without me realizing it.  And that, my friends, is all the degrees of the barbell strategy for investing. Have any thoughts, comments, or ways to improve this post? Please hit me up!                    Get my (sometimes) weekly newsletter     Get my (sometimes) weekly newsletter     Get my (sometimes) weekly newsletter             								Email							      Subscribe                  								Email							      Subscribe                    Nothing here is financial advice or a recommendation to buy or sell a security. We may have financial interests in companies we discuss or recommend. Purchases made from this site may lead to an affiliate commission.      Privacy Terms Contact    Privacy Terms Contact