The Barbell Philosophy: Navigating Change and Stability in Investment

#52 Angelinvesting.it - From idea to Series A - Weekly Newsletter

Dear reader,

I am sometime asked how my strategy as an angel investor aligns with managing the investment holding of my family, which I have been overseeing since 2010. Below, I share some thoughts that I am formalizing in writing for the first time. As always, I hope they are of interest to you.

Investment Strategy Distilled

- Reserve 15% for high-reward bets (HRB), the game-changers

- Dedicate 85% to extremely low-risk bets (LRB), the safety nets

- Avoid the middle ground to save time, money, and mental energy

- Balance time between HRB and LRB: 50% each

Philosophy Powering the Strategy

Barack Obama, a political leader I greatly admire, recently expressed a principle that profoundly resonates with my worldview. He highlighted how maturity of thought often lies in accepting the coexistence and mutual reinforcement of two seemingly contradictory ideas.

This principle is the cornerstone of my investment holding.

But what are these seemingly contradictory ideas?

One is the concept of technology as a catalyst for change. A force driving increasingly extreme, rapid, and unpredictable transformations. Events like Brexit, Covid, the war in Ukraine, the assault on Capitol Hill seem more like Hollywood scripts than the reality we perceived possible.

The contrasting idea is the stability in a world where people find comfort and security in routines and habits. This concept, beautifully conveyed by Giuseppe Tomasi in The Leopard, illustrates how "everything changes to stay the same."

Inspired by these two divergent perspectives, I've formulated a strategy for my holding. It echoes the barbell's form, a concept eloquently described by renowned thinker Nassim Taleb.

The 15% of investments are channeled towards technologies riding the wave of global change. These are binary bets, capable of producing extraordinary returns or, on the flip side, consuming the entire capital. They demand considerable time, thorough research, and a resilient temperament.

The remaining 85% of investments prioritize risk mitigation. The mantra here is "safety first." The allocation goes to industries, products, and services covering basic human needs, a long list of needs that no technological change will disrupt. This less thrilling but crucial part of the strategy requires an equally intensive study, a deep understanding of risk, and unwavering discipline.

The lure of moderate risk-return profile investments is real. The temptation to conform to the average is an ever-present hazard.

Challenges Ahead

As 2024 begins and I step into my 41st year, I am fully aware that the journey ahead will be challenging. Understanding risk and return, concepts both elusive and complex, requires a lifetime of experience to truly master. However, this is a pursuit I am wholeheartedly committed to in the decades of my professional career that lie ahead.

To be honest, I am not entirely certain that I will rise to meet this challenge. There is no shortage of doubts, and the challenges are many. Yet, I must acknowledge the comfort I find in utilizing the barbell strategy as a model for risk management. It serves as a guiding 'north star', offering direction during times of uncertainty and making this formidable challenge seem a bit less daunting.

Simone

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