Buffet's number one rule for investing

Reflections on risk, and staying in the game for decades

According to Buffet you can sum up investing in two pithy sentences… “Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1." Given the elevated volatility of markets I’ve been thinking quite a bit about those two rules.

Here’s a bit of truth: right now is the best chance I’ll ever have to succeed at investing. I have a decent chunk of change, bear market sale prices on assets, and I’m young enough that if I can compound my bankroll I’ll wind up with proper steak dinner money. I don’t want to be hyperbolic, but I will almost certainly never get another opportunity like this. If I fail, I’m done. If I can’t make this work I’m enrolling at a trade school to learn how to repair air conditioners. Being the best read air conditioner technician this side of the Mississippi wouldn’t be a bad life, but I would prefer to make it as a dollar slinger.

Here’s a quote from Radigan Carter’s latest article. “This is why the best investors are ones with substantial amount of their own money at risk and treat their capital as irreplaceable because if you lose that money, you cannot get the years back it took to earn it.”

I am not the best investor, but I can aspire to that. Here’s another truth: to enjoy long term success you have to survive. The ladies and gentlemen who do this their whole lives, Howard Marks comes to mind, preserve capital. I want to be like Howard Marks. I don’t necessarily have ambitions to become a billionaire, but I would very much like to be relevant in fifty years.

The point?

I’m attempting to organize my thinking with this post, to make sense of the thoughts that have been haunting my cortex for the last week or two. Survive, don’t lose money.

Vamp Capital🩸 @RampCapitalLLC

$TLT will never go up again in my lifetime. Good night.

My position in TLT is down 10%, that’s not very smart is it? Am I the dumbest man alive for buying bonds in an inflationary environment? Sure, you could argue that. I think there’s an 80% chance that within the next 6 to 12 months this trade will be profitable. I believe that a lot of treasuries are getting sold out of desperation, and that this trend will reverse. However, I think the better point is: why buy TLT when the risk/reward is all out of wack?* There are other market sectors with more promising returns.

*Funny, ain’t it, how buying the “world’s safest” risk-free asset is now a risky trade. Welcome to our brave new world

My position in oil equities and precious metal miners is about even. Given that both of these sectors continue to get the beat down, I think that’s all fine. I’m still cautiously dollar cost averaging into both sectors on every dip.

70% of my AUM remains in cash. That’s proven to be a good call so far, although it hasn’t necessarily been easy. I’ve found it difficult to keep so much cash in the face of all these bear market rallies, especially that epic summer rally. However, the bear case appears to be 5x stranger than the bull case. In fact, I don’t even know what the bull case is at this point. Maybe it’s that everything won’t be quite as horrible as we think? Or that the Fed will pivot soon? Perhaps. Assuming that the Fed doesn’t pivot in the next month or two though, which is my base case, I think the market is going to shreds. That’s why I have the cash.

The future

I’ve been getting mentally lost in the short term volatility. I’ve been spending too much time on Twitter, too much time staring at the charts even though I’m not day trading. Lost in the trees, no forest for me this October. In my moments of clarity, as is the case now, I remind myself to think about the bigger picture. To the maximum extent possible, follow Buffet’s two rules. I still want to be writing these articles five years from now (and beyond). I want to get through this and end up in a good position to benefit from the bull market to come.

Paulo Macro @PauloMacro

My friends, I am going to walk you down memory lane in 2001 because as I wrote earlier today and over many months: Bears are a process, one that takes time, and will drive you crazy without context and some distance. 1/6

That’s all I have for now, so I’ll end this rambling post with another excellent quote from Radigan. Enjoy.

“As always, I distill down events with my own experience and then try to determine if it changes anything in my personal life as I try to do the best I can to be a wise steward of my savings in what seems like an increasingly insane world as I continue to learn.”