{"id":4253,"date":"2019-11-25T17:26:19","date_gmt":"2019-11-25T21:26:19","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=4253"},"modified":"2022-03-11T15:38:44","modified_gmt":"2022-03-11T19:38:44","slug":"barbell-strategy","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/barbell-strategy\/","title":{"rendered":"Barbell Strategy: The Safest Way for Maximum Profits"},"content":{"rendered":"\n

What is the barbell strategy? What is a barbell investing approach? How can you adopt the barbell strategy to mitigate risk in investing and in life?<\/p>\n\n\n\n

The \u201cbarbell strategy\u201d is an approach designed to minimize the pain of a negative event while, potentially, reaping the benefits of a positive event. The barbell strategy is commonly used in investing, but it’s also applicable to life more generally.<\/p>\n\n\n\n

We’ll cover the nature of the barbell strategy and other strategies for mitigating risks.<\/p>\n\n\n\n\n\n\n\n

Adopt the \u201cBarbell Strategy\u201d<\/strong><\/h2>\n\n\n\n

When Nassim Nicholas Taleb<\/a> was a trader, he pursued an idiosyncratic investment strategy to inoculate himself against a financial Black Swan<\/a>. He devoted 85%\u201390% of his portfolio to extremely safe instruments (Treasury bills, for example) and made extremely risky bets\u2014in venture-capital portfolios, for example\u2014with the remaining 10%\u201315%<\/strong>. (Another variation on the strategy is to have a highly speculative portfolio but to insure yourself against losses greater than 15%.) The high-risk portion of Taleb\u2019s portfolio was highly diversified: He wanted to place as many small bets as possible to increase the odds of a Black Swan<\/a> paying off in his favor<\/strong>. This is an example of a barbell investment strategy.

<\/p>\n\n\n\n

The \u201cbarbell strategy\u201d minimizes the pain of a negative Black Swan while, potentially, reaping a positive Black Swan\u2019s benefits. If the market collapses, a person pursuing this strategy isn\u2019t hurt beneath the \u201cfloor\u201d of the safe investments (say, 85%), but if the market explodes, he has a chance to capitalize by virtue of the speculative bets.<\/p>\n\n\n\n


(Shortform note: There is, of course, the possibility that a Black Swan will affect even the safest investment\u2014in fact, if we take Taleb at his word, there is no such thing <\/em>as a safe investment.)
<\/p>\n\n\n\n

Other Ways to Mitigate Risk<\/h2>\n\n\n\n

Prepare, Don\u2019t Predict<\/strong><\/h3>\n\n\n\n

The barbell approach isn’t the only way to mitigate risk in investments and in life. Because Black Swans are, by definition, unpredictable, we\u2019re better off preparing <\/em>for the widest range of contingencies than predicting <\/em>specific events<\/strong>.
<\/p>\n\n\n\n

That\u2019s because, though Black Swans themselves can never be predicted, their effects <\/em>can be. For example, no one can predict when an earthquake will strike, but one can know what its effects will be and prepare adequately to handle them.
<\/p>\n\n\n\n

The same goes for an economic recession. No one can predict precisely when one will occur, but, using the \u201cbarbell strategy\u201d or some other means of mitigating risk, we can at least be prepared for one.<\/p>\n\n\n\n

Maximize Possibilities for Positive Black Swans<\/strong><\/h3>\n\n\n\n

Although the most memorable Black Swans are typically the negatively disruptive ones, Black Swans can also be serendipitous<\/strong>. (Shortform note: Love at first sight is undoubtedly a Black Swan.)

Taleb advocates (1) sociability and (2) proactiveness when presented with an opportunity as strategies for opening ourselves up to positive Black Swans. Sociability puts us in the company of others who may be in a position to help us\u2014we never know where a casual conversation might lead. And proactiveness\u2014taking up a successful acquaintance on an invitation to have coffee, for example\u2014ensures we\u2019ll never miss our lucky break. This is another way of using the barbell strategy.
<\/p>\n\n\n\n

Distinguish Between Positive Contingencies and Negative Ones
<\/em><\/strong><\/h3>\n\n\n\n

Different areas of society have different exposure to Black Swans, both positive and negative. 
<\/p>\n\n\n\n

For example, scientific research and moviemaking are \u201cpositive Black Swan areas\u201d\u2014catastrophes are rare, and there is always the possibility of smashing success. The stock market or catastrophe insurance, meanwhile, are \u201cnegative Black Swan areas\u201d\u2014upsides are relatively modest compared to the possibility of financial ruin. 
<\/p>\n\n\n\n

It\u2019s important to note that the history of a negative\u2013Black Swan area will underrepresent the possibility of catastrophe. An obvious example is financial markets, which always appear stable until they crash. Positive\u2013Black Swan areas, oppositely, will underrepresent the possibility of serendipity: Despite years of research, a cure for cancer hasn\u2019t been found; but one could <\/em>be found any day. In order to mitigate risk and employ the barbell strategy, it’s important to know where the biggest risks lie.<\/p>\n\n\n\n


Suffice it to say, we should take more risks in a positive Black Swan area than in a negative Black Swan one<\/strong>.<\/p>\n","protected":false},"excerpt":{"rendered":"

What is the barbell strategy? What is a barbell investing approach? How can you adopt the barbell strategy to mitigate risk in investing and in life? The \u201cbarbell strategy\u201d is an approach designed to minimize the pain of a negative event while, potentially, reaping the benefits of a positive event. The barbell strategy is commonly used in investing, but it’s also applicable to life more generally. We’ll cover the nature of the barbell strategy and other strategies for mitigating risks.<\/p>\n","protected":false},"author":4,"featured_media":4295,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[31,21],"tags":[60],"class_list":["post-4253","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-money","category-philosophy","tag-black-swan","","tg-column-two"],"yoast_head":"\nBarbell Strategy: The Safest Way for Maximum Profits - Shortform Books<\/title>\n<meta name=\"description\" content=\"The \u201cbarbell strategy\u201d minimizes the pain of a negative event while reaping the benefits of positive ones. Learn how it's used in investing and life.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.shortform.com\/blog\/barbell-strategy\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Barbell Strategy: The Safest Way for Maximum Profits\" \/>\n<meta property=\"og:description\" content=\"The \u201cbarbell strategy\u201d minimizes the pain of a negative event while reaping the benefits of positive ones. Learn how it's used in investing and life.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.shortform.com\/blog\/barbell-strategy\/\" \/>\n<meta property=\"og:site_name\" content=\"Shortform Books\" \/>\n<meta property=\"article:published_time\" content=\"2019-11-25T21:26:19+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-03-11T19:38:44+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/11\/swan-barbell-2.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"776\" \/>\n\t<meta property=\"og:image:height\" content=\"514\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Amanda Penn\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Amanda Penn\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.shortform.com\/blog\/barbell-strategy\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/barbell-strategy\/\"},\"author\":{\"name\":\"Amanda Penn\",\"@id\":\"https:\/\/www.shortform.com\/blog\/#\/schema\/person\/01b0e4c9ddb993e51d03808839d538b0\"},\"headline\":\"Barbell Strategy: The Safest Way for Maximum Profits\",\"datePublished\":\"2019-11-25T21:26:19+00:00\",\"dateModified\":\"2022-03-11T19:38:44+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/barbell-strategy\/\"},\"wordCount\":707,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/#organization\"},\"image\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/barbell-strategy\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/11\/swan-barbell-2.jpg\",\"keywords\":[\"The Black Swan\"],\"articleSection\":[\"Money\",\"Philosophy\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/www.shortform.com\/blog\/barbell-strategy\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.shortform.com\/blog\/barbell-strategy\/\",\"url\":\"https:\/\/www.shortform.com\/blog\/barbell-strategy\/\",\"name\":\"Barbell Strategy: The Safest Way for Maximum Profits - Shortform Books\",\"isPartOf\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/barbell-strategy\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/barbell-strategy\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/11\/swan-barbell-2.jpg\",\"datePublished\":\"2019-11-25T21:26:19+00:00\",\"dateModified\":\"2022-03-11T19:38:44+00:00\",\"description\":\"The \u201cbarbell strategy\u201d minimizes the pain of a negative event while reaping the benefits of positive ones. Learn how it's used in investing and life.\",\"breadcrumb\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/barbell-strategy\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.shortform.com\/blog\/barbell-strategy\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.shortform.com\/blog\/barbell-strategy\/#primaryimage\",\"url\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/11\/swan-barbell-2.jpg\",\"contentUrl\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/11\/swan-barbell-2.jpg\",\"width\":776,\"height\":514},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/www.shortform.com\/blog\/barbell-strategy\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/www.shortform.com\/blog\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Barbell Strategy: The Safest Way for Maximum Profits\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/www.shortform.com\/blog\/#website\",\"url\":\"https:\/\/www.shortform.com\/blog\/\",\"name\":\"Shortform Books\",\"description\":\"The World's Best Book Summaries\",\"publisher\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/#organization\"},\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/www.shortform.com\/blog\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Organization\",\"@id\":\"https:\/\/www.shortform.com\/blog\/#organization\",\"name\":\"Shortform Books\",\"url\":\"https:\/\/www.shortform.com\/blog\/\",\"logo\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.shortform.com\/blog\/#\/schema\/logo\/image\/\",\"url\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/06\/logo-equilateral-with-text-no-bg.png\",\"contentUrl\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/06\/logo-equilateral-with-text-no-bg.png\",\"width\":500,\"height\":74,\"caption\":\"Shortform Books\"},\"image\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/#\/schema\/logo\/image\/\"}},{\"@type\":\"Person\",\"@id\":\"https:\/\/www.shortform.com\/blog\/#\/schema\/person\/01b0e4c9ddb993e51d03808839d538b0\",\"name\":\"Amanda Penn\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.shortform.com\/blog\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/09\/64793342-83f4ea00-d540-11e9-9bfc-cb9ecaf5e55d.jpg\",\"contentUrl\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/09\/64793342-83f4ea00-d540-11e9-9bfc-cb9ecaf5e55d.jpg\",\"caption\":\"Amanda Penn\"},\"description\":\"Amanda Penn is a writer and reading specialist. She\u2019s published dozens of articles and book reviews spanning a wide range of topics, including health, relationships, psychology, science, and much more. Amanda was a Fulbright Scholar and has taught in schools in the US and South Africa. Amanda received her Master's Degree in Education from the University of Pennsylvania.\",\"url\":\"https:\/\/www.shortform.com\/blog\/author\/amanda\/\"}]}<\/script>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"Barbell Strategy: The Safest Way for Maximum Profits - Shortform Books","description":"The \u201cbarbell strategy\u201d minimizes the pain of a negative event while reaping the benefits of positive ones. Learn how it's used in investing and life.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/www.shortform.com\/blog\/barbell-strategy\/","og_locale":"en_US","og_type":"article","og_title":"Barbell Strategy: The Safest Way for Maximum Profits","og_description":"The \u201cbarbell strategy\u201d minimizes the pain of a negative event while reaping the benefits of positive ones. Learn how it's used in investing and life.","og_url":"https:\/\/www.shortform.com\/blog\/barbell-strategy\/","og_site_name":"Shortform Books","article_published_time":"2019-11-25T21:26:19+00:00","article_modified_time":"2022-03-11T19:38:44+00:00","og_image":[{"width":776,"height":514,"url":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/11\/swan-barbell-2.jpg","type":"image\/jpeg"}],"author":"Amanda Penn","twitter_card":"summary_large_image","twitter_misc":{"Written by":"Amanda Penn","Est. reading time":"3 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/www.shortform.com\/blog\/barbell-strategy\/#article","isPartOf":{"@id":"https:\/\/www.shortform.com\/blog\/barbell-strategy\/"},"author":{"name":"Amanda Penn","@id":"https:\/\/www.shortform.com\/blog\/#\/schema\/person\/01b0e4c9ddb993e51d03808839d538b0"},"headline":"Barbell Strategy: The Safest Way for Maximum Profits","datePublished":"2019-11-25T21:26:19+00:00","dateModified":"2022-03-11T19:38:44+00:00","mainEntityOfPage":{"@id":"https:\/\/www.shortform.com\/blog\/barbell-strategy\/"},"wordCount":707,"commentCount":0,"publisher":{"@id":"https:\/\/www.shortform.com\/blog\/#organization"},"image":{"@id":"https:\/\/www.shortform.com\/blog\/barbell-strategy\/#primaryimage"},"thumbnailUrl":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/11\/swan-barbell-2.jpg","keywords":["The Black Swan"],"articleSection":["Money","Philosophy"],"inLanguage":"en-US","potentialAction":[{"@type":"CommentAction","name":"Comment","target":["https:\/\/www.shortform.com\/blog\/barbell-strategy\/#respond"]}]},{"@type":"WebPage","@id":"https:\/\/www.shortform.com\/blog\/barbell-strategy\/","url":"https:\/\/www.shortform.com\/blog\/barbell-strategy\/","name":"Barbell Strategy: The Safest Way for Maximum Profits - Shortform Books","isPartOf":{"@id":"https:\/\/www.shortform.com\/blog\/#website"},"primaryImageOfPage":{"@id":"https:\/\/www.shortform.com\/blog\/barbell-strategy\/#primaryimage"},"image":{"@id":"https:\/\/www.shortform.com\/blog\/barbell-strategy\/#primaryimage"},"thumbnailUrl":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/11\/swan-barbell-2.jpg","datePublished":"2019-11-25T21:26:19+00:00","dateModified":"2022-03-11T19:38:44+00:00","description":"The \u201cbarbell strategy\u201d minimizes the pain of a negative event while reaping the benefits of positive ones. Learn how it's used in investing and life.","breadcrumb":{"@id":"https:\/\/www.shortform.com\/blog\/barbell-strategy\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/www.shortform.com\/blog\/barbell-strategy\/"]}]},{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.shortform.com\/blog\/barbell-strategy\/#primaryimage","url":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/11\/swan-barbell-2.jpg","contentUrl":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/11\/swan-barbell-2.jpg","width":776,"height":514},{"@type":"BreadcrumbList","@id":"https:\/\/www.shortform.com\/blog\/barbell-strategy\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/www.shortform.com\/blog\/"},{"@type":"ListItem","position":2,"name":"Barbell Strategy: The Safest Way for Maximum Profits"}]},{"@type":"WebSite","@id":"https:\/\/www.shortform.com\/blog\/#website","url":"https:\/\/www.shortform.com\/blog\/","name":"Shortform Books","description":"The World's Best Book Summaries","publisher":{"@id":"https:\/\/www.shortform.com\/blog\/#organization"},"potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/www.shortform.com\/blog\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Organization","@id":"https:\/\/www.shortform.com\/blog\/#organization","name":"Shortform Books","url":"https:\/\/www.shortform.com\/blog\/","logo":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.shortform.com\/blog\/#\/schema\/logo\/image\/","url":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/06\/logo-equilateral-with-text-no-bg.png","contentUrl":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/06\/logo-equilateral-with-text-no-bg.png","width":500,"height":74,"caption":"Shortform Books"},"image":{"@id":"https:\/\/www.shortform.com\/blog\/#\/schema\/logo\/image\/"}},{"@type":"Person","@id":"https:\/\/www.shortform.com\/blog\/#\/schema\/person\/01b0e4c9ddb993e51d03808839d538b0","name":"Amanda Penn","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.shortform.com\/blog\/#\/schema\/person\/image\/","url":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/09\/64793342-83f4ea00-d540-11e9-9bfc-cb9ecaf5e55d.jpg","contentUrl":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/09\/64793342-83f4ea00-d540-11e9-9bfc-cb9ecaf5e55d.jpg","caption":"Amanda Penn"},"description":"Amanda Penn is a writer and reading specialist. She\u2019s published dozens of articles and book reviews spanning a wide range of topics, including health, relationships, psychology, science, and much more. Amanda was a Fulbright Scholar and has taught in schools in the US and South Africa. Amanda received her Master's Degree in Education from the University of Pennsylvania.","url":"https:\/\/www.shortform.com\/blog\/author\/amanda\/"}]}},"jetpack_sharing_enabled":true,"jetpack_featured_media_url":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/11\/swan-barbell-2.jpg","_links":{"self":[{"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/posts\/4253","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/comments?post=4253"}],"version-history":[{"count":8,"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/posts\/4253\/revisions"}],"predecessor-version":[{"id":4927,"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/posts\/4253\/revisions\/4927"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/media\/4295"}],"wp:attachment":[{"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/media?parent=4253"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/categories?post=4253"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/tags?post=4253"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}