Exposing myself to extreme success. Or maybe not.
Staying at home for over a year with no expenditure of my own 1 meant that I had accumulated a nice pile of cash for myself from my job. Since I don’t like being a chump, I decided that it was time to start building an investment portfolio with my money. I read and heard many books, articles and podcasts 2 on how to manage my money and transition it to “wealth”. I am sure everyone reading this would agree that having a well thought out investment portfolio is the fiscally prudent thing to do in my situation. Its probably what all of us would do (unless you are the fiscally irresponsible kind. Or like gambling).
After deciding to attain pecuniary perfection, I started dilligently doting over my portfolio of passive funds, torridly tracking multiple international indices and rabidly reading online thesauri to sound smarter 3. Despite having a thourough investment plan to build wealth, I faultered in planning a portfolio of the most important asset you can have, Knowledge (or as guru extrordinaire Tai Lopez would say - “Knawlidge”). It was time I treated my knowledge capital the same way I treated my financial capital.
My Investment strategy.
Starting this month, I have planned out a strategy for investing in my knowlege capital. I have decided to follow the “Barbell strategy” to my investment. Self proclaimed flaneur, mathematical philosopher and pretentiousista4 Nassim Nicholas Taleb popularised this method in his book Anitfragile.
Before we get to why this strategy is so great, let’s understand the problem we are trying to solve for by adopting this strategy. Taleb famously coined the phrase, a “Black Swan”, an event or happening that is unpredictible and has a massive impact. The 2008 financial crisis is a famous example of a Black Swan. We are currently living in the shadow of the Covid 19 Black Swan. Black Swans can be both positive, and negative. The Bitcoin rally is an example of a positive Black Swan. The core characteristic of a Black Swan is that is its unpredictible, and high impact.
The barbell strategy aims to curb negative Black Swans, and expose yourself to positive Black Swans. This is done by never staying in the middle, only in the extremes. One end of the barbell is extremely safe, the other end of the barbell is extremely unsafe, and high risk. The high risk part of the barbell in a best case scenario exposes you to positive Black Swans. In the worst case, you lose your whole high risk portion due to a negative Black Swan, but you have your super safe end of the barbell to protect you.
An example of a financial barbel, courtesy Jean Galea
This strategy applies to all facets of life. In fact, more so in the non financial aspects of life. There are many ways that a barbell can be applied, here are a few examples from a career point of view:
- Have a super stable, boring, government job. And write on the side. Franz Kafka, legendary surrealist author worked as an Insurance agent, and wrote on the side. A similar approach could be used for working on side projects, while on the job.
- Work in a stable job for some years, and then leave it all to start your on high risk venture. If all fails, get back the stability of a job.
These are two forms of the barbell, there can be several other variants, in the different facets of life. I am going to apply the barbell strategy to my technical knowledge capital.
Garbage in, garbage out.
I program computers for a living. Things move fast in my field, and things that are cutting edge today, would be garbage tomorrow. Ask any programmer when was the last time they wrote a Java applet, once considered the defacto way to create an internet application 5 . Today, browsers don’t even support them. The whole thing is garbage. And as a believer in the adage of “Garbage in, garbage out”, we know what my knowledge portfolio will look like over time.
To get over this, I am going to barbell my investment. To do this, first, I must determine what are my “safe assets”. In a field with technologies and knowledge being as transient as they are, how do I find out what is a “safe” investment? The answer to this is the Lindy effect:
“A technology, or anything nonperishable, increases in life expectancy with every day of its life.”
A similar metric can be used to find extremely high risk, high reward investments too. I have proposed the following two simple heuristics 6 define my assets:
- Safe asset heuristic: Technologies/concepts that have had a lifespan of a minimum of 25 years. Example: Concurrency, Virtualisation, Compilers.
- Risky asset heuristic: Technology/concepts that have a maximum age of 5 years. Eg: HTTP/3, Web3 technologies.
My risk appetite is high, so I want to split my time investment in these assets in a ratio of 70:30.
That’s the distribution of knowledge, now for implementing this strategy, I would create a knowledge SIP, or a systematic investment plan. Methods of investment for me would include, but not be limited to:
- Read one technical book per month.
- Create projects in a rolling manner on the side.
- Writing about newer concepts.
Another thing to remember is that I should diversify my safe assets. I have to be a generalist. This is my techical knowledge barbell.
The non-technical portfolio.
My approach to general non-fiction, or fiction is different from my approach towards my technical portfolio. Here, I am going to disrespect Mr Taleb, and follow the golden mean, extremely diversified approach. I am going to index fund it.
For the purpose of this discussion, I am going to consider two axes of diversification - time, and subject. I am in diversifying both.
In practice, this would look something like this:
- Read book from all parts of our history, 1200s, 1800s, 1700s, 2020s - you get the idea. An even distribution. Right now, I am skewed tightly towards the 2000s (specifically the 2010s). This would of course have to be normalised for the actual books published during the era.
- Read from as many fields as possible - maths, art, philosophy, biology, self help - I shouldn’t stick to one genre. Keep rolling genres, no back to back same subject.
This would equally expose me to both positive Black Swans, and negative Black Swans. Fortunately, I don’t have anything to lose here, since I love reading enough for the reading to be the reward for the investment itself. I am technically in a position of symmetry, but I would like to think I have optionality. This is for pleasure.
Here, I have outlined my strategy for investments in my knowledge portfolio. This is but a plan on paper. Applying it effectively is going to be hard, and its something I am going to explore in future articles based on the (hopefully extreme) success (or failure) of this plan.
My favourite ones so far are “The Psychology of Money”, “Naval Ravikant’s Almanac” and “The Millionaire Fastlane”. If you are into podcasts, “Planet Money” has some great episodes that can be applied to your personal finance. See my book reviews and notes for more. ↩
Inb4 someone says “large words don’t make you sound smarter” - I sometimes enjoy writing in an obnoxious, flowery manner. ↩
Credit where it’s due, the guy is smart. And entertaining. And has changed my world view. ↩
Somehow, the teachers in my university decided creating Java Swing Applets as something worth teaching. In 2018. I wish to attain this degree of ignorance to the outside world, quite literally teaching deprecated technology. ↩
Its a creality ender 3, and I highly recommend it. ↩