What investment strategy would you deduce from the latest article from Charles Munger?
"So, I've read the article in question, ""Basically, It's Over"".  Here's my opinion: I respect Charlie Munger but I think his parable misses the mark.  If he's trying to convince the average person (or at least the average Slate-reading person) that America is overspending and headed for trouble, the parable could have been told better.  I wasn't sure how to follow some of the analogies he was making, and didn't experience the clear ""aha"" I was hoping for. Nevertheless, I agree with his point of view, which I see as:  In the long run, the United States is going to have serious difficulty in supporting its debt habit, energy consumption habit, and its currency. In terms of an investment strategy to protect oneself, here are some thoughts.  These don't constitute a complete strategy, but are some points to consider as part of an overall strategy: If the U.S. is going to continue amassing debt fast, it would stand to reason it will become a worse credit risk, requiring it to pay higher interest rates on its debt.  Long-term treasury bonds would decline as rates increase, and so wouldn't be a great place to be invested today. In order to pay the mounting debt and debt servicing costs, the U.S. will continue to run the printing presses, to inflate itself out of debt.  This increase in the money supply will put downward pressure on the U.S. dollar relative to the currencies of better-run economies.  U.S. cash and short-term treasuries might not be a great place to be invested today.  Hedge with inflation-indexed bonds (e.g. TIPS) or the bonds of stronger major economies – but diversify; don't just pick one. If you agree that energy prices are headed higher, especially relative to U.S. dollars, then a good sector to invest a portion of one's portfolio would be world energy producing companies.  (Send some of your money over to Canada, we have lots of oil and we're right next door :-) Anybody who has already been practicing broad, global diversification is already reasonably protected.  Clearly, ""diversification"" across just U.S. stocks and bonds is not enough. Finally: I don't underestimate the ability of the U.S. to get out of this rut.  U.S. history has impressed upon me (as a Canadian) two things in particular: it is highly capable of both innovating and of overcoming challenges.  I'm keeping a small part of my portfolio invested in strong U.S. companies that are proven innovators – not of the ""financial""-innovation variety – and with global reach."
it's kind of like a circular loop:  i think he would suggest identifying strategies/portfolio managers who have demonstrated outperformance in a persistent manner.  Thing is, that's also really hard to do.  I think empirically, MPT suffers when the market does. By diversifying, you'll only be down less. He's suggesting shooting for absolute returns -- no matter what the market does, he wants to see positive gains.  (a lot) easier said than done I think your best strategy is to learn more about the behavior of what you're investing in.  Learn everything you can about it.  Specialize in it.  The more you study, the more the proper strategy will present itself. Answer the questions you ask in paragraph 3 through your own study. If anyone is interested in looking into it, the company Pinnacle has actually been using theory from quantitative finance for a long time. I went to one of their talks during useR!2017 in Brussels, really interesting betting company. Ok, so here's the strategy I decided to go with in the meantime: Allocate E1 to A_corp and E3 to A_ira. Here are my considerations which I assume at this stage to be right: "There is actually a recent paper that attempted to decompose Buffett's outperformance. I've quoted the abstract below: ""Berkshire Hathaway has realized a Sharpe ratio of 0.76, higher than any other stock or mutual fund with a history of more than 30 years, and Berkshire has a significant alpha to traditional risk factors. However, we find that the alpha becomes insignificant when controlling for exposures to Betting-Against-Beta and Quality-Minus-Junk factors. Further, we estimate that Buffett’s leverage is about 1.6-to-1 on average. Buffett’s returns appear to be neither luck nor magic, but, rather, reward for the use of leverage combined with a focus on cheap, safe, quality stocks. Decomposing Berkshires’ portfolio into ownership in publicly traded stocks versus wholly-owned private companies, we find that the former performs the best, suggesting that Buffett’s returns are more due to stock selection than to his effect on management. These results have broad implications for market efficiency and the implementability of academic factors.""" Yeah, but how many 1970s gold bugs invested early? Paul strikes me as typical of the breed: reactive and reactionary. Probably  acquired a stack of double eagles and gold stocks in 1975, at the peak of the Arab oil embargo inflation--as did others I know.  Even worse, Paul's leveraged equities short fund would have destroyed him over the same period. So the unanswered critical question remains: when did he dive into gold and shorts? "Let me start by giving you a snippet of a report that will floor you. Beat the market? Investors lag the market by so much that many call the industry a scam.   This is the 2015 year end data from a report titled Quantitive Analysis of Investor Behavior by a firm, Dalbar. It boggles the mind that the disparity could be this bad. A mix of stocks and bonds over 30 years should average 8.5% or so. Take out fees, and even 7.5% would be the result I expect. The average investor return was less than half of this. Jack Bogle, founder of Vanguard, and considered the father of the index fund, was ridiculed. A pamphlet I got from Vanguard decades ago quoted fund managers as saying that ""indexing is a path to mediocrity."" Fortunately, I was a numbers guy, read all I could that Jack wrote and got most of that 10.35%, less .05, down to .02% over the years. To answer the question: psychology. People are easily scammed as they want to believe they can beat the market. Or that they'll somehow find a fund that does it for them. I'm tempted to say ignorance or some other hint at lack of intelligence, but that would be unfair to the professionals, all of which were scammed by Madoff. Individual funds may not be scams, but investors are partly to blame, buy high, sell low, and you get the results above, I dare say, an investor claiming to use index funds might not fare much better than the 3.66% 30 year return above, if they follow that path, buying high, selling low. Edit - I am adding this line to be clear - My conclusion, if any, is that the huge disparity cannot be attributed to management, a 6.7% lag from the S&P return to what the average investor sees likely comes from bad trading. To the comments by Dave, we have a manager that consistently beats the market over any 2-3 year period. You have been with him 30 years and are clearly smiling about your relationship and investing decision. Yet, he still has flows in and out. People buy at the top when reading how good he is, and selling right after a 30% drop even when he actually beat by dropping just 22%. By getting in and out, he has a set of clients with a 30 year record of 6% returns, while you have just over 11%. This paragraph speaks to the behavior of the investor, not managed vs indexed." "I would change that statement to ""very few people can CONSISTENTLY beat the market "". Successful strategies will get piled into and reduce returns. Markets will pick up inefficiencies, but at the same time they do exists. Tons of interesting reading especially in regards to value. Is there a risk premium that we don't know for value? Or is it a market behavior thing?" Slice and Dice would have the approach for dividing things up into 25% of large/small and growth/value that is one way to go. Bogleheads also have more than a few splits ranging from 2 funds to nearly 10 funds on high end. The goal of the kelly criterion strategy is to find a balance between preservation of starting capital and returns. One of extreme you could bet the entirety of your account on one trade, which would maximize your returns if you win, but leave you unable to further invest if you lose. On the other extreme, you could bet the smallest amount of capital possible over the course of several trades to increase the probability that you'll even out to 70% accuracy over time. But this method would be extremely slow.  So for your case, investing 40% each time is one way to find an optimal balance between these two extremes. Use this as a rule of thumb though, because your own situation and investing goals may differ from the goal of  optimal growth. Given what you state you should shop around for an advisor. Think of the time required to pursue your strategies that you list? They already have studied much of what you seek to learn about. Any good investor should understand the basics. This is Canadian based but many of the concepts are universal. Hope you find it helpful. http://www.getsmarteraboutmoney.ca/Pages/default.aspx Playing the markets is simple...always look for the sucker in the room and outsmart him. Of course if you can't tell who that sucker is it's probably you. If the strategy you described could make you rich, cnbc staff would all be billionaires. There are no shortcuts, do your research and decide on a strategy then stick to it in all weather or until you find a  better one. I am a bit at a loss as to how you can read the same book, that inspired Warren Buffet, and take away that trading 600 contracts per month is a way to prosperity.  As a fellow engineer I can say with assurance this speculation scheme is doomed to failure.  Crossing out the word gamble was a mistake.   Instead you should focus on two things.  The first is your core business, which is signal processing.  Work and strive to be the best you can.  Seek out opportunities to increase your income while keeping your costs low.  As an engineer you have an opportunity to earn an above average salary with very low costs. Second would be to warehouse some of those earning and let others who are good at other things work for you.  You may want to read the Jack Bogle books and seek an asset allocation model.  I tend to be more aggressive then he would suggest, but that is a matter of preference.    You don't really have the time, when you focus on your core business, to manage 6 trades a month let alone 600.  Put your contributions on auto pilot and a surprisingly short time you will have a pile of cash. "The first article you link clearly refers to Warren Buffet and doesn't, in regard to taxes, refer in any way to Berkshire Hathaway. The second article you link is titled, ""Ways Professional Traders Can Save Big At Tax Time."" Berkshire Hathaway is not a firm primarily engaged in trading. It is engaged in investing in companies that it feels offer long-term growth and appreciation. In some cases, their investment is in the entire company; in others, a very large percentage of its total capitalization. Trading, on the other hand, involves buying stocks, bonds, futures, etc. for near-term resale, ideally at a profit. Stock speculation is a risky and complex occupation because the direction of the markets are generally unpredictable and lack transparency.  As has been mentioned above, we are confident that Berkshire Hathaway use every technique at its disposal to reduce its tax burden. I am confident, as well, that they spend considerable effort and expense to be certain that they are never discovered making errors in their tax returns." I really like Value Investing by Bruce Greenwald. It's not a textbook so you can probably pick it up for about $20. While it is dense, I think with some patience you might be able to understand it at the undergrad level. The process outlined in the VI book is very different from the conventional corp finance way of valuing a company.  A typical corp finance model would probably have you model cash flows 5 or 10 years out and then assume some sort of terminal growth. The VI book argues that it's nearly impossible to predict things that far out accurately so build your valuation on what we know. Start with the balance sheet. Then look at this year's earnings. Is that sustainable?  This is a simplification of course but I describe it only so you can get the idea. I think it's definitely a worthwhile read.