Save like a pessimist, invest like an optimist

I’m skeptical of the closing claim that exponential growth keeps happening forever. Yes, you can grow GDP 2% for 200 years, that results in an economy 50x the start size. Expand it to 1000 years and you’re talking about an economy 400 million times as large. After 2100 years you’re up to an economy a QUINTILLION times as large.<p>At some point the exponential curve has to go S-shaped. Maybe we’re still in the happy exponential looking part of the curve. There are also signs we might be transitioning. Population growth has slowed, productivity growth has slowed, and the marginal return on capital seems to be somewhere around zero given modern interest rates.

The article is kind of fluffy. Not everyone should save and invest the same way. Someone who&#x27;s closer to retirement shouldn&#x27;t necessarily be investing like an &quot;optimist&quot; (i.e. more risky long-term portfolio), and they&#x27;ll probably want more liquid assets than someone who&#x27;s in their 20s with very limited obligations.<p>Having an emergency fund can benefit everyone but beyond that your portfolio should ideally be driven by your goals and their timeline. If you have no goals and you&#x27;re just trying to make as much money as possible in the stock market like a lot of new retail investors, this definitely should be given some thought.<p>I think most could be better served by learning and applying goal-based investing and modern portfolio theory to achieve what this article is clumsily trying to suggest.<p><a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Goal-based_investing" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Goal-based_investing</a><p><a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Modern_portfolio_theory" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Modern_portfolio_theory</a>

I&#x27;m totally philosophically aligned with this article and enjoyed reading it, but I&#x27;m just interested to hear whether anyone else has this problem: More and more stuff I read seems to be name-droppy like this. For instance, I&#x27;ve been reading &quot;The Psychology of Money&quot; recently, and I&#x27;m enjoying it, but its style is a lot like this article; an endless series of anecdotes about famous and semi-famous people, with insights from the author tying them together. Is this a new trend of some kind, or has it just become more obvious to me lately?<p>Edit: Ha! I did not catch the part at the end where this is the same author as that book. Ok then!

One question that&#x27;s been top of mind lately for me is how optimistic you should be in your investing strategy.<p>IBK currently allows retail investors to trade on margin with an annual interest rate of only 1% (yes, really). You can borrow up to 2x your principle at this rate.<p>If you were extremely optimistic, you would borrow 2x your principal and expect to 3x your annual return.<p>If you were optimistic but wanted to avoid risk of ruin, you would borrow between 0-1x of your principal.<p>Curious if anyone here has considered this or has a strong opinion on it.<p>Side-note: I&#x27;m assuming my &quot;principle&quot; in the above scenarios is the remaining cash I have on hand after my rainy day fund (i.e. the saving like a pessimist part).

I&#x27;m a foreigner that&#x27;s lived in the US since college. Half of my friends and family are american and the rest foreign. There&#x27;s a huge cultural difference between both sides&#x27; approach to wealth.<p>My american f&amp;f (outside of silicon valley) think of wealth in terms of &quot;saving for retirement.&quot; 401ks, tax strategies, etfs, stocks etc. It&#x27;s very passive, probably &quot;correct&quot;, and very unambitious.<p>The foreign side is totally different. They have very little interest in saving for retirement--they think in terms of investing in businesses. They don&#x27;t buy etfs or stocks. They buy (small, then larger) businesses. It&#x27;s very active and after age 40 or so takes up most of their time. The goal is to never retire, but rather to build a series of cash producing entities for ever.<p>Part of this is certainly cultural. In lots of the world, being a <i>boss</i> is higher status that being an *employee&quot;, regardless of the actual income each activity generates. The owner of a business with 200k in revenue is higher status than a McKinsey employee with a 500k salary.<p>This cultural difference is reflected in a desire to escape &quot;wages&quot; as soon as possible, not necessarily &quot;save for retirement&quot;.

pretty generic advice<p>&gt;Compounding is easy to underestimate because it’s not intuitive, even for smart people. Michael Batnick once explained it. If I ask you to calculate 8+8+8+8+8+8+8+8+8 in your head, you can do it in a few seconds (it’s 72). If I ask you to calculate 8x8x8x8x8x8x8x8x8, your head will explode (it’s 134,217,728).<p>what does this have to do with anything. no kidding that multiplication is harder than addition (it requires many additions).<p>Using Microsoft and Bill Gates as an examples is major example of survivorship bias. What about the hundreds or thousands of other companies and founders that tried such an approach and still failed. Yeah, in hindsight anything Microsoft does will look like genius given how successful Bill Gates and Microsoft are. if Bill gates had policy of tying his shoes at work instead of at home, people would probably read into that as part of his success.

My advice is “do your best but also have a certain amount of luck”

Save like a donkey, invest like a monkey.

&gt; Once the odds are in your favor, compounding takes hold. And then …. boom<p>I am not sure this is all the story, the specific way in which you bet matters too.<p>Consider investing in daily leveraged ETFs in contrast with non-leveraged ones, for example.

&gt; You could tell three things about Bill Gates pretty quickly. He was really smart. He was really competitive; he wanted to show you how smart he was. And he was really, really persistent.<p>Of course he was also a lier (vapor ware). And a cut throat business man.<p>You might like nowadays Bill Gates philanthropist, but there is a reason people hated him for decades. I don’t understand why retrospectives on him ignore this side.

‘Bankroll management’ concepts in the poker community were a fantastic learning tool about concepts such as variance and risk of ruin. The ‘tldr’ recommendation is to keep 20 x buyins of a cash game or 100 x for tournaments, but inside the nitty gritty, as Opponent skill increases proportionally to your own, Winrate decreases, meaning more buyins are required to offset risk. ‘Running bad’ can last hundreds of thousands of hands too - 100-year disasters happen every few hundred hands in what mentally seems mathematically improbable is actually likely to happen at an unexpectedly high frequency. Even if you have a 10,000 buyin bankroll, there’s no guarantee you won’t go bust even with a significant skill edge. Be a slight losing player and you will forever appear to be ‘running bad’ but just turns out you suck.<p>Applying this to real world business concepts is interesting too - corona was a great example, and for all we know next year could be unrelated total world war, past has some indication of future trends but only when the sample size is substantially large (in the case of geopolitics and disasters, all known global history is an insignificant sample)

The entire blog post is just a platitude. I didn&#x27;t get anything out of it.

Is there any way to estimate the total amount of investments that are vulnerable to a margin call or similar mechanisms that can force a sale during a downturn?

I wonder if the author had Antonio Gramsci in mind during the redaction. It would be pretty funny they hadn’t.

1. Live below your means, always. 2. Have an appropriate allocation in stocks and fixed income. 3. Prosper.

&quot;Save like a pessimist, invest like an optimist.&quot; Beautiful! Just what i was looking for. So simple and reasonable. How did I not think of this before?