Bitcoin can be a part of N N Taleb's "Antifragile Barbell" Investment Scheme

[OROBTC]

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Nassim Nicholas Taleb (famous for popularizing the term "Black Swan" and writing a book about it) wrote a book a few years later titled Antifragile.  "Antifragile" things are those that get stronger after being put under stress (oversimplifying).  I have seen gold mentioned as an antifragile investment, in that it will likely perform better as other investments fail, yet gold is considered a "Tier 1" reserve holding by the BIS for banks and Central Banks.

His barbell idea is illustrated below (hey, I'm not an artist).  He suggests hodling 90% or so in very safe investments (I include gold as very safe, YMMV), the other 10% in high-risk-high-return speculations like low priced options that would likely expire worthless but come in BIG TIME once in a while.  He also writes that many other investments (eg, stocks, real estate) have higher risks than most people (inc. investments "professionals") believe...


 III                            III
 III============III
 III                            III

cash                           options
treasuries                   BTC
gold?                          gold?

~90%                        ~10%

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[coolcoinz]

He might be right because Bitcoin was so undervalued that people thought it wouldn't survive and were quick to regard it as a dying project every time some litte problem came to light.
When it kept on going people begun to change their minds and think that maybe it is that honeybadger, that white crow they were looking for. So, yes, as long as bitcoin stays on the investment map it's going to keep growing and gaining supporters and believers.
As for real estate being more risky than people think, I agree, but it's one of the few things that won't become worthless (unless there's war). Land will always have value, even if that value drops significantly, which can't say about stocks.

[teosanru]

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Nassim Nicholas Taleb (famous for popularizing the term "Black Swan" and writing a book about it) wrote a book a few years later titled Antifragile.  "Antifragile" things are those that get stronger after being put under stress (oversimplifying).  I have seen gold mentioned as an antifragile investment, in that it will likely perform better as other investments fail, yet gold is considered a "Tier 1" reserve holding by the BIS for banks and Central Banks.

His barbell idea is illustrated below (hey, I'm not an artist).  He suggests hodling 90% or so in very safe investments (I include gold as very safe, YMMV), the other 10% in high-risk-high-return speculations like low priced options that would likely expire worthless but come in BIG TIME once in a while.  He also writes that many other investments (eg, stocks, real estate) have higher risks than most people (inc. investments "professionals") believe...


 III                            III
 III============III
 III                            III

cash                           options
treasuries                   BTC
gold?                          gold?

~90%                        ~10%

How will bitcoin form part of Antifragile side? Gold is considered ultra safe because it has seen centuries and milleniums of development and yet never in history it has been seen as worthless. Even though people think Bitcoin as a similar technology but yet categorizing something 10 year old which hasn't seen the uncertainities of decades would be foolishness. Talking about keeping bitcoin on 10% side. If we are considering both Gold and BTC alike types of commodoties then keeping both of them together in a portfolio doesn't makes sense right? Shouldn't we instead keep something that has a negative correlation with gold so that atleast if gold looms down the other 10% given a unprecedented return and when 10% goes to fail gold will still be becoming stronger? You should give some details about this theory?

[hatshepsut93]

Bitcoin is a high risk - high reward investment, but it's not suitable for hedging, because recently is has been moving together with the stock market, so there's a pretty big chance that if a crash comes, Bitcoin will crash even harder. For this strategy the 10% investment needs to be something that is likely to perform well if a crisis happens.

[mu_enrico]

Investment decision depends on your goal mate. If you are a young man desires to be rich, reverse your holding to 90% high-risk and 10% low-risk assets. Conversely, if you already in a good financial position and want to stay wealthy, go for 90% low-risk assets. Anyway, the "Antifragile Barbell" thing is just a jargon. The fundamental is still the same, as long as the portfolio is efficient, you can pick and choose which one you like the most.

[Lucius]

Bitcoin is unique, anyone looking for any comparisons to gold, stocks or anything else is on the completely wrong track. There will also always be people who say that Bitcoin is just another big internet scam - it has been so from the very beginning, and yet its value today is such that some large companies transfer part of their cash reserves to BTC - and funds like Grayscale have almost 500 000 BTC in their accounts.

Bitcoin has never been for investors who don’t understand technology, who are slaves to the old system, and for those who are afraid to make changes in their lives. We can talk about any ratios here, but we all know that it is not wise to keep all the eggs in the same basket - but I believe that everyone who did not invest in BTC some 5-6 years ago regrets today, and I have no doubt that the same will happen in the next 5 years.

The golden rule is that investing in high-risk investments is only what we are willing to lose - all those who do the opposite gamble with a much higher stake, which can sometimes have very ugly outcomes.

[JayJuanGee]

Bitcoin is unique, anyone looking for any comparisons to gold, stocks or anything else is on the completely wrong track. There will also always be people who say that Bitcoin is just another big internet scam - it has been so from the very beginning, and yet its value today is such that some large companies transfer part of their cash reserves to BTC - and funds like Grayscale have almost 500 000 BTC in their accounts.

Bitcoin has never been for investors who don’t understand technology, who are slaves to the old system, and for those who are afraid to make changes in their lives.

Surely, it is difficult to capture exactly what bitcoin is, but there are a lot of people who get mislead into thinking that bitcoin is technology, even though it surely uses technology to achieve digital scarcity and sound money in that direction which does make it a bit difficult to understand and also there are a lot of technologically smart people who get distracted into shitcoins and wrongly believing that they are somewhat similar are equal or even better than bitcoin.

We can talk about any ratios here, but we all know that it is not wise to keep all the eggs in the same basket - but I believe that everyone who did not invest in BTC some 5-6 years ago regrets today, and I have no doubt that the same will happen in the next 5 years.

Of course, with bitcoin we can review its price performance history compared to other assets, and the longer that we are able to have created an investment timeline, the better BTC's price performance is going to have had differentiated itself from other assets.

Take this example of DCA investing of $10 per week for the past 6 years - comparing such investment in BTC to gold and to equities, and of course, the website does allow tweaking of the timeline in order to compare various other investment timelines between 6 months and 9 years.

I agree with you that there is nothing really indicating that bitcoin is not going to continue to have relatively better price performance compared with other assets in the coming 5 years or even longer, so anyone just getting started could take some kind of similar or modified approach to the matter.

The golden rule is that investing in high-risk investments is only what we are willing to lose - all those who do the opposite gamble with a much higher stake, which can sometimes have very ugly outcomes.

Getting off of zero remains one of the best first steps, and also then there might be a need to figure out how much to do, and how to do it and what to do as BTC prices go up (in the event that they do).  There are surely ways to deal with those kinds of particulars, including working out some of the details as you go along and build up your BTC investment portfolio, and surely it makes sense to create some tentative plans, but also makes sense to tweak the plans along the way.

So, for example, in late 2013, when I got into bitcoin, my early plans were just to establish "a bit of a stake", yet after I was in bitcoin for about 6 months, my goal became to diversify the overall value of my total investment portfolio into bitcoin in order to reach a 10% allocation in bitcoin, which for me largely meant getting my BTC allocation higher than it was at that time.  So, it took me until the end of 2014 before I finally reached my 10% accumulation/allocation goal.  Once I reached that allocation goal, then I felt that i had more options, and it made a bit more sense for me to consider various other kinds  of plans after reaching that goal rather than planning ahead, because I was attempting to learn along the way.  Sure, I am NOT suggesting that my only goal was BTC accumulation in 2014 - but that was the main goal.

By the way, the value of the first BTC that I bought (nearly $1,200) stayed in the red for more than 3.3 years, but since I kept buying all along, the value of my overall BTC portfolio (average of about $500 per BTC by the end of 2015) got into break even territory in about 2 years and profitable in about 2.5 years.  

Part of my point is what to do can be adjusted along the way, including planning how to deal with exponential BTC price gains or exponential BTC price drops.. whether to sell a bit when the BTC price goes up and/or to buy a bit when the price goes down or some other strategy, and my personal strategy has been similar to other longer term BTC HODLers and that is to continue to hang onto a decent amount of my stash no matter what the BTC price does, and the value of that has largely had its ups and downs, but overall seems to have trended more towards up rather than down, even if we have experienced long periods of down and flat along the way.

Furthermore, if a person maintains a bit of a balance in his/her various other NON-bitcoin investments, and the value of the bitcoin investment goes shooting up relative to the other assets, so the combination of assets in the investment portfolio becomes overly weighted in BTC, there is NOT necessarily an absolute need to reallocate or rebalance those investments and not just allow the winner (which has been bitcoin) to continue to ride... even if such bitcoin allocation starts to dwarf other assets in the portfolio.

So, for example in my case, I largely achieved my accumulation goal of 10% in late 2014, but since the BTC price remained down and flat for most of 2015, I ended up accumulating enough additional BTC during that time that I had ended up overallocating and reaching around 13% allocation - which had its own ramifications on my consideration of my BTC holdings relative to my overall other investments, and when BTC prices largely shot up from around $250 to $19,666) between late 2015 and late 2017, my BTC allocation got to above 90%, and then when BTC prices dropped back down to $3,124 in late 2018, my BTC allocation ended up dropping to 50%, and currently, my BTC holdings float around 70%.

So the lopsided value of my BTC holdings relative to other assets in my portfolio largely had to do with BTC's over appreciation relative to those other assets, rather than my making any greater investments into BTC - except for that period in 2015 when I had started to gravitate towards overinvesting in BTC beyond my initial 10% allocation authorization amounts.

These remain personal choices regarding how to play these matters, whether to reallocate or whether to allow your winners to ride, and how much to allow for such winners to ride and even maybe scraping off some profits here and there along the way.

None of those choices regarding what to do and how to manage your BTC portfolio will make much if any sense if they are attempted to be made in the hypothetical and the abstraction because in a considerable degree each of us are products of our own circumstances including how much of a stake we have taken and how that stake has played out throughout the time that we have been invested in BTC - including whether or not we are in profits, if so how much we are in profits, and what the remainder of our investment circumstances look like, including considering our cash flow, other investments, view of bitcoin as compared with other investments, risk tolerance, timeline and our time, skills and abilities to learn along the way, plan and to tweak our plans and allocations along the way, including how much time that we are going to engage in trading or other allocation methods in terms of using those activities for managing our portfolio.

[OROBTC]

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hatshepsut93 and teosanru

Taleb's Barbell Strategy does not concern itself with correlation, at least not much.

One side of the barbell is for ultra-safe investments (that ideally keep up with inflation, which Treasuries do not currently do not as their interest rates are so low) are on one end, and on the other end are the riskiest possible investments that offer a LARGE UPSIDE but with limited risk (losing all of any investments on the risky "10%" end).

Examples of investments at the risky end:

-- buying options (calls or puts), especially cheap ones.  Yep, you could lose 100%, but that would be less than or equal of the 10%
-- cheap futures (eg, a gold January 2021 option, strike price of $3000)

Note that you only put small parts of your 10% in any one investment, just putting your 10% in ONE investment makes you fragile!

Also note that he does not distinguish between a bullish or bearish investment.

Examples of something NOT to invest in your 10% (risky) end:

-- writing options or selling short.  You could lose MORE THAN 100% of these investments!
-- anything you would buy using borrowed money (as you could lose more than 100%)

Borrowing money is FRAGILE!  You may have trouble paying it back if things go wrong.


One of Taleb's main points is that most investment risks are grossly misunderstood.  He considers that the risk of a major "blow-up" (massive losses) is much higher than people, even investment professionals, think.

Another major point of his is NOT to "predict the future", but to identify what is fragile (for example bonds in Italian banks, or commercial real estate REITS), and then act.  Keep your best small, they may very well end up at $0.  But, enough of these risks, risky enough to go WAY UP when they blow-up, that you will make a lot.  Risk is typically mis-priced!  Especially risks of low probability, but a properly placed bet on a weak investment may make a lot of dough.

N. N. Taleb has "f**k you money" from doing just this.  90% ultra-safe, 10% properly placed bets on fragility.

[Darker45]

Are there no other factors involved, say, whether the investment's degree of safety varies depending on its term or duration? Or perhaps on the specific economy's stability status where treasuries and cash are highly dependent on?

Anyway, it seems like your barbell is highly imbalanced to me. That doesn't reflect my own way of dividing my investments as well. Or perhaps I am also interested on how that 90% is further divided among those investments under it. I'm afraid I won't trust cash so much as far as investment is concerned. Also, I trust real estate, specifically pieces of land, more than stocks, cash, treasuries, and so on.

[OROBTC]

Are there no other factors involved, say, whether the investment's degree of safety varies depending on its term or duration? Or perhaps on the specific economy's stability status where treasuries and cash are highly dependent on?

Anyway, it seems like your barbell is highly imbalanced to me. That doesn't reflect my own way of dividing my investments as well. Or perhaps I am also interested on how that 90% is further divided among those investments under it. I'm afraid I won't trust cash so much as far as investment is concerned. Also, I trust real estate, specifically pieces of land, more than stocks, cash, treasuries, and so on.

Nor do Taleb's holdings match my own.  I too am diversified, but he makes a very interesting case based on misperceptions of RISK.

The 90% ($-value) of his Barbell would be ultra-safe.  So, you would never lose more than 10% of your holdings.

The 10% are the riskiest assets you can buy with low & limited downside but HUGE upside.  I am surmising that you would buy such things (options, options on Bitcoin, etc.) in small quantities each such that you could endure many of them going to zero (like options would).  But, sometimes you would win.  And win BIG.  That's the point, low-priced out of the money options (for example) appear to be underpriced, hence, in the long run would yield the occasional "White Swan" (an unexpected low probability event with enormous positive impact).

An example of a 10% investment that a acquaintance of mine had was he bought S&P 500 puts right just before one of the drops in October 2008.  There were several days when the market dropped various percentage points, he made a schnittload of money (perhaps some 20 times as much as he bet) over those few days.

Taleb apparently does just this.  He is a MUCH better speculator/trader/investor than I am.  He is also much richer, and self-made.

My own holdings likely are closer to your own.  But, I have cash & gold for "my 90%" even though those are not 90% of my net.  And no debt.  Taleb recommends holding Treasuries, but he wrote the book before rates went down so much that the REAL INTEREST rates are near zero.
 
He also recommends holding no debt, debt holdings are fragile (you might have to pay it back at a bad moment, like a margin call, or bank calling in your mortgage).  

He does not like real estate either, it's taxable, illiquid (what if you have to sell in a hurry?), possibly bought with borrowed money, perhaps a hassle to hold, possible landlord/tenant problems (look at commercial real estate now), etc.  Illiquid investments tend to be fragile by their very nature (unpredictable BIG losses can happen).

*   *   *

Diversification is my game.  I hold lots of different kinds of assets, discussed elsewhere here at bitcointalk.  Good diversification is what he terms "Robust".  Like a rock, hard to break.  But, "Antifragile" is better in his opinion, in that whatever you have that is antifragile gets stronger (more valuable) when stressed.

And, properly applying his principals, is how you get rich at lower risk as a speculator.

Those who don't have time nor interest in following his fairly involved insistence of research and understanding would do better to stick to robust and/or diversified investments.

Taleb, Nassim Nicholas
Antifragile -- Things That Gain from Disorder
2012


Edited for typos and corrections

[Mauser]

Bitcoin is a high risk - high reward investment, but it's not suitable for hedging, because recently is has been moving together with the stock market, so there's a pretty big chance that if a crash comes, Bitcoin will crash even harder. For this strategy the 10% investment needs to be something that is likely to perform well if a crisis happens.

I agree with you that bitcoins is a high risk/reward invesmtent similar to stocks, but I don't see such a high correlation with stocks like you. If we would have a big crash I think people would dumb stocks and try to invest into cash items, Bitcoins for me is similar to cash so I think there should be a lot of people trying to switch out of stocks into bitcoins. The problem we are facing at the moment is that there is not a lot of hedges available that are affordable. For example gold was the natural hedge for many people during a crash. But right now we are seeing Gold near it's all time high while the stock market is still looking strong. The long time of low interest rates over the last 5-10 years made many old hedges obsolete. 

[hatshepsut93]

I agree with you that bitcoins is a high risk/reward invesmtent similar to stocks, but I don't see such a high correlation with stocks like you. If we would have a big crash I think people would dumb stocks and try to invest into cash items, Bitcoins for me is similar to cash so I think there should be a lot of people trying to switch out of stocks into bitcoins.

Of course from a point of view of a bitcoiner Bitcoin is the best thing ever, it's digital gold/cash/store of value/hedge/best payment method and will go to the moon no matter what, but mainstream investors don't view Bitcoin as such, they think it's an extremely volatile asset that can't be analyzed with any methods, it's just purely speculative market, so few people would buy it at the times of a crisis, when people are looking for some certainty.

[Hydrogen]

Nassim Nicholas Taleb (famous for popularizing the term "Black Swan" and writing a book about it) wrote a book a few years later titled Antifragile.  "Antifragile" things are those that get stronger after being put under stress (oversimplifying). 

Good post. I've never heard or read any of this before. Thanks for sharing.

The term antifragile (IMO) appears to imply adaptive capacity. It could be more accurate to utilize terms like "best historically performing assets under recessions" when assessing precious metals like gold. The adaptive potential of gold to stress depends upon the degree to which its mined coupled with intrinsic utilization in various markets. Which could fluctuate upwards or down.

Bitcoin might be considered antifragile in a more literal sense if its deflationary trend consistently fluctuates towards scarcity and increased valuation throughout its lifespan.

These are gross oversimplifications given the large number of variables and potential contingencies. The term antifragile could imply an intrinsic motive or reason for assets to continue positive valuation trends in the face of uncertainty, doubt or fear. Which could be a bit of an exaggeration on the humanizing scale of things.

[hugeblack]

Investing is not the game of people who fear loss. Otherwise, playing from the safe side needs a lot of liquidity and wealth will not be distributed in many portfolios that may be considered safe.
Concentration is the solution, which is the concentration of investments in a certain thing, even if it is safe. As for trying to diversify investments in things that are safe, it will not lead to a rapid multiplication of money.

If you do not like to take risks, keep your money and keep your minimum spending very low.