Avoid Blowing Up

In graduate school, I interned at a hedge fund in the Minneapolis area that did everything from high-frequency trading to betting on interest rates, volatility, and commodities.

It was an incredible education on how the market really worked. But one comment stuck out to me more than any others.

On my final day, I had a talk with the big boss, and he was shockingly candid about what he did and how lucky he had been to get there. He had been at hedge funds for 25+ years, and he said, “Everyone blows up. We’re just trying to survive as long as we can.”

The market is only down a few percentage points in 2025 and I’m already starting to see posts about portfolios blowing.

Someone who had made over a million dollars in crypto put it all on Microstrategy $MSTR ( ▲ 4.18% ) on leverage.

They blew up.

Now, after the bankruptcy of First Brands and subprime lender Tricolor, there’s concern that private credit is hitting a wall and that leverage in lending will cause cascading failures.

Some of the most popular stocks on the market earlier this year are cratering. And I’m not even going to get into the drop in crypto.

And still, the market overall is holding up fairly well, and the big tech companies that dominate the S&P 500 are trading at or near all-time highs.

If the blowups get bigger, the drawdown could get worse.

The Asymmetric Portfolio has fallen from its highs, but it’s not blowing up. In fact, some of the poor performers over the last few months are the same stocks that have driven the portfolio’s outperformance this year, as I highlighted earlier this week.

In Case You Missed It

Here’s some of the content I put out this week.

• Hims & Hers’ Lab Takeaways: I got my labs done at Hims & Hers. Check out this article to see how it looks step by step.

• Why 6 Stocks I Own Are Falling: The Asymmetric Portfolio is down over the past month, but the explanation comes down to a lot of great companies seeing valuations come down.

Don’t Blow Up

While hedge funds may blow up on a regular basis, they have an incentive to do so.

Hedge fund managers make money based on the returns they generate for their investors. And they attract money based on outsized returns that attract attention. Just beating the market by a narrow margin each year isn’t enough.

Put it this way, it’s in a hedge fund’s interest to bet on “Red” at the roulette table and have a 49% chance of doubling their money and a 51% chance of going bust. The upside of having a 100% return year is potentially 10x-ing the size of your fund. Go bust, and they can start over again.

Our personal portfolios don’t work that way.

But avoiding going bust is relatively straightforward.

Avoid Leverage

Nearly every investing horror story starts with leverage.

Margin is what wipes out investors.

Borrowing against a house to invest is a bad idea.

Taking out a personal loan or student loans to trade doesn’t usually end well.

Leverage is what destroys investors.

Admit You Might Be Wrong

I get a lot of things wrong.

But it took me 20+ years to realize that being wrong is OK, and as long as I’m not too concentrated in an investment I’m wrong about, it’ll work out.

The asymmetric upside of any winners will overwhelm the few losers I am wrong about.

But many investors get this part of investing wrong.

They go all-in on Tesla (that worked for many).

Or they go all-in on space stocks, or quantum, or nuclear.

Being right can be life-changing, but being wrong can be devastating if an investor is too concentrated.

And even those who win a high-risk bet often double down again and again, eventually getting it wrong.

Understanding that we might be wrong about any given investment thesis is a superpower. Use it!

Celebrate When Other People Win, But Avoid FOMO

Fear of Missing Out (FOMO) comes when we see others winning and get jealous.

FOMO clouds judgment and leads to irrational decisions.

This is why people buy hot stocks at the top and sell at the bottom.

It’s OK if others win.

Play your own game.

FOMO should be avoided at all costs.

We Need to Survive to Thrive

When stocks fall, it’s hard to keep a level head and understand that the market will eventually go higher.

And the 7.2% drawdown in the Nasdaq 100 is nowhere near the 71% drawdown in 2001-2003 or the 52% drawdown in 2009.

Surviving those moments is the only way to see the long-term gains you see below (and hopefully better).

We need to survive the bad times to thrive in the good times.

If the market does reach a rough patch over the next year or two, the answer isn’t to leverage and buy stocks with no fundamentals due to FOMO.

The answer will be making simple, sound decisions that seem downright boring.

It’s buying Google for a 15x P/E multiple in spring 2025.

It’s buying Apple for a 10 P/E multiple in 2016.

Don’t blow up in bad times, and you’ll be set to thrive in the good times.

Even the wealthiest people I’ve met don’t always follow that simple mantra.

Disclaimer: Asymmetric Investing provides analysis and research but DOES NOT provide individual financial advice. Travis Hoium may have a position in some of the stocks mentioned. All content is for informational purposes only. Asymmetric Investing is not a registered investment, legal, or tax advisor, or a broker/dealer. Trading any asset involves risk and could result in significant capital losses. Please do your research before acquiring stocks.