Money Vichara

Sometime in 2008, while banks were collapsing and portfolios were being wiped out across the world, a trader named Nassim Taleb was having a very different experience. While most of Wall Street was holding "moderate risk" portfolios — diversified, balanced, professionally managed — Taleb's fund was reportedly up nearly 100% that year. Not because he predicted the crisis. But because of how he had structured his bets long before the crisis arrived. He had not tried to find the comfortable middle ground. He had deliberately stayed away from it. That philosophy has a name. Taleb calls it the Barbell Strategy. And the idea at its core is as simple as it is uncomfortable: the middle of the risk spectrum is not safe. It is the most dangerous place to be. The World Taleb Sees Before understanding the Barbell, it helps to understand how Taleb sees the world. Most financial models assume that markets behave somewhat predictably — that returns follow a bell curve, that extreme even...

Think back to March 2020. Or if you were not investing then, try to imagine it. The COVID-19 lockdown had just been announced. Markets were falling every single day — sometimes two, three percent in a single session. The news was overwhelming. Nobody knew how long this would last. Now imagine you were someone who had done everything right. You had not put all your money in one stock. You had spread it carefully — equity mutual funds for growth, debt funds for stability, a little gold for safety, maybe even an international fund for geographical diversification. You had read the advice. You had followed it. You had a proper, balanced portfolio. And then you watched it all wobble. Together. At the same time. Certain debt funds, particularly those exposed to credit risk, came under severe pressure as redemption pressures hit — even as government bond funds and liquid funds largely held their ground. Gold went through a brief, sharp sell-off as investors rushed to raise cash, before recove...

When you invested in that stock, or added to that mutual fund — did you think about how much to put in? Not what to invest in. Most of us think hard about that. We research, compare, ask around. But how much — as a deliberate, reasoned decision — is a question most investors never seriously ask. We invest what feels right. What feels comfortable. What we happened to have lying idle. And in doing so, we make one of the most consequential decisions in our financial lives almost entirely on instinct. There is a better way to think about this. And it comes from an unlikely place. The Man Who Worked at Bell Labs John Kelly was a physicist at Bell Labs in America in the 1950s — the same place where Claude Shannon invented information theory, which we explored in the Shannon's Demon post. In 1956, Kelly asked a precise question: If you have an edge,  How much should you bet to maximize the long-term compound growth of your wealth while avoiding eventual ruin? The answer he arr...