It’s not all bad, since high volatility among the majors can deliver extraordinary capital gains as well. It’s a mistake to think that buying senior gold, copper, or other commodity producers makes investors safe from potential major capital losses.
It did almost the same thing from 2011 to 2015, without a market crash (just a prolonged bear mauling). The stock dropped from $49.55 to $3.23-a 95.3% haircut in just a few short months. I remember when major copper producer Teck fell off a cliff in 2008. It’s all highly speculative, even the majors. Specifically, I see some resource speculators “balancing” high-risk, early-stage exploration plays with major-presumably much more solid-producers. The problem I see is that some investors are applying this macro-level strategy on a micro-level. For a general investment strategy, splitting allocating some funds to high-risk, high-reward speculation and some to safer, more solid bets makes sense to me. Bonds may not be as low risk as they once were in the modern financial world, but that’s another matter. If you think about it, the old “60/40 rule” for splitting one’s capital between stocks and bonds is a type of pre-Taleb barbell strategy. Today’s market volatility and some of the responses to it that I’m seeing make me think that many investors take the analogy too far… or they seek to apply it incorrectly. I’ve written before that disciplined resource speculation can add a lot of upside to the high-risk end of an investor’s barbell.
#NASSAM TALEB THE 10X RULE SKIN#
The insightful Nassim Taleb’s book on investing, Skin in the Game, advocates what he calls a “barbell strategy.” He shows how splitting one’s investments between low-risk and high-risk opportunities can outperform a more cautious, middle-of-the-road strategy.
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