Investing and Free Agency

Today's Newsletter:

• Quote from Jeff Bezos

• Investing and Free Agency

• Taking Calculated Bets

• A Money Question

Quote

“Given a 10% chance of a 100 times payoff, you should take that bet every time.” - Jeff Bezos

Jeff Bezos took Amazon from an online bookseller to an all-encompassing juggernaut. He knew there was a chance it might not work but the upside of the bet was worth the risk. Investing whether in your business or the S&P 500 is much the same. We take calculated bets based on the risk and the potential upside.

Investing and Free Agency

The Major League Baseball offseason is in full swing. The Winter Meetings start today and with that the signings of top free agents.

Growing up in Saint Louis, I was a huge Cardinals fan and every year I would pray they would sign the top available players. Much to my disappointment, they rarely “won the offseason”. Instead, they would take a more measured approach, trying to find diamonds in the rough. All of this while big market teams like the Yankees and Dodgers would back up the Brinks truck for top free agents.

You see as a young kid, what I didn’t understand was the connection between risk and reward. While it was fun to dream about top free agents being a part of the team I cheered for, rarely did I consider the downside of signing a nine-figure player.

Less money for next year ~ potential limitations at the trade deadline ~ an overall roster hinging on one or two key players performing.

Investing and how you decide to place your money should be looked at the same way. There is a limited supply of it, fresh opportunities each year, and the heavier the bet the more that opportunity needs to perform.

Today, I want to walk through how I think about investing money. We will walk through my approach to my safest investments up to my Bezos bets, the ones with a 10% chance of a 100x return.

Let’s dive in!

Taking Calculated Bets

If you hear nothing else from this week’s newsletter hear this ~ in investing you don’t have to swing at every pitch. In the 15 years I have been investing money, I have said no to 99% of the opportunities that have come my way.

I either didn’t understand them, lacked the conviction needed to stick with them, or just merely wasn’t excited about the potential outcome.

I look at my investments in three buckets. Each bucket is unique in terms of the investments but each bucket feeds the other.

Bucket 1 - The War Chest

These are my safest investments. For me, this is a combination of cash and bonds. My returns won’t be huge but they will provide the foundation to invest the rest of my portfolio.

Bucket 2 - Growth Strategy 

This is my core portfolio. It is going to ebb and flow with the market but these are diversified long-term bets. My returns here will compound for decades.

Bucket 3 - Aspirational Strategy

These are my Bezos bets or the free agents I am signing. They are my highest risk plays but the potential upside is greater than the risk.

Here is what this looks like in visual form:

The critical part of these buckets is without one you couldn’t have the other. They all play a role in my portfolio.

The war chest needs to be there for me in the next few years while the aspirational bucket is money with a 10+ year time horizon.

One is not like the other. Yet, they complement one another.

It is much like free agents in baseball. If every team only signed high-priced free agents it would be like me only investing in bucket 3. It could work but I would have no foundation if those few concentrated bets didn’t pay off.

My encouragement to you is to think about your investments with the end in mind. What are you trying to accomplish with your money? Answer that question and then you can start determining what your war chest, growth strategy, and Bezos bets might look like.

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Here is what mine looks like:

My Money Goal - To compound my family’s wealth for the next few decades and never have to stress about money. This means that I take a more measured approach to my investments. I am hitting singles and doubles.

My breakdown between buckets: 

~ 10% of my money is in my war chest.

~ 75% of my money is in my growth strategy.

~15% of my money is in my aspiration bucket.

This is due to a combination of my goals, my age, my income, and my spending.

Always remember my friends, money is personal and your approach to it should be just as personal.

A Money Question

What are you most excited about with your money?

We live in a world that can be on autopilot. It is important to remember what you are working towards. Personal finances are a decades-long game but that doesn’t mean we shouldn’t celebrate the weekly, monthly, and yearly progress we are making.

Work with Jacob

I help athletes, entrepreneurs, and executives pay less in taxes, simplify their financial lives, and invest for the long run.

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Until Next Time, My Friends

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