Holy Grail of Investing – A Barbell Investment Approach
You’ve all heard the old adage: “You can’t HAVE your cake and EAT it too.” (For non-English language readers, a more accurate adage would be “You can’t KEEP your cake and eat it too.”) When it comes to the trade-off between risk and rewards in the investment arena, this adage is always accepted as gospel truth. One can stride for low volatility and consistent returns, but these returns will be very low. Or one can strive for high returns, but volatility and intermittent draw-downs must necessarily accompany that.
But what if I proposed a sacrilegious concept: that you can keep your steady returns (your proverbial cake) while indulging in mouth-watering growth rates along the way? If you are truly a conservative investor (I didn’t say a smart one), you’ll have already averted your eyes from such blasphemy, perhaps even performing the sign of the cross for good measure, and quickly clicked away from this page. But if you are still reading this, give yourself a pat on the back. It means you know that great results require unconventional thinking. You may NOT achieve the results with a different approach, but if you use the same approach you’ve always used, guess what? You’ll get the same dismal trade-off.
Our strategy will involve this rather strange looking tool: the lopsided barbell.