- Diversify into different markets and investment options
- Keep 10% of capital in cash
- When return is high, sell enough to get back the principal
- When black swan events happen, make some hedging bets
- Buy fixed return options like PF
- Maintain liquidity while playing long term
- Invest then investigate
Types of investment:
- High risk investments which have low probability of returns. Such an investment ideally should be a hedge against the current mainstream financial system. For example bitcoin. It is a bet against the fiat currency. The probability of bitcoin giving a very high (100x) return is low. But bitcoin giving a high (10x) return in short term is likely. High risk investment should be less than 10% of your net capital.
- Low risk investment which are very likely to give a return over a long time horizon. This investment should be made for at least a 10 year horizon. Since the horizon lock-in is so long, this investment should be not more than 20% of your net capital. Ideally this investment should give 8% average annual return over 10 years which will double the initial investment. This should be a mixed bag of safe investments.
- Medium risk investment which are based on some study or knowledge about which you are confident. For example investment in electric car company Tesla. This kind of investment should ideally be for a time horizon of 5 years. And the investment about can be 5% of your net capital.
- Hedging bets are made when you are not certain what will happen in the future and you want to protect your downside. Since it is a hedge do not expect a return from the investment. The purpose is to protect that larger share of portfolio rather than generate returns. The investment can be 10-25% of the investment amount of the main bet against which you are hedging. A hedge is recommended and the total value of all hedged bets should be around 5% of total portfolio.
- Event specific or black swan investments are those in which you are predicting certain asset price movements like gold or stocks or currency based on a new global event. For example a war or COVID-19 like outbreak. An example of this is buying gold and shorting the stock market. These bets are high returns but medium to high risk. Recommended investment amount is 2-4% of net capital.
- Income based investments like real estate or partnership in a running business. The most common investment is real estate for rental income. This kind of investment is not liquid and is expensive to sell in both time and money. Such investments are for generating income which can be used for business or personal expenses. The lucrative thing about such investments is that they can go up in value while generating income. Around 20% - 30% of total net capital can be investment in heavy assets.
- Cash or currency is another form investment which gives instant liquidity in case a new opportunity comes up. Recommended share is 10% of net capital.
- Commodities like gold are very stable investments. Not sure if other commodities are so stable too. Gold is a specially good investment and a hedge against currency market. Another example is bitcoin.
I have already tested most of the investment types. The recommended percentage investment figures are not tested. But I will try to attempt and apply them in the coming months.