Suppose you think there’s a stock bubble; the temptation is to buy, hold as it rises, and then sell at the top of the bubble before everything comes crashing down. But enough people are trying to do that that you need some special skill in order to be in the leading edge, able to sell when there’s a buyer. It’s much less risky to just sell the stocks as soon as you think there’s a bubble, which foregoes any additional gains but means you avoid the crash entirely (by taking it on voluntarily, sort of).
The correct move in this situation isn’t to get out early, but to leverage down. By keeping a balanced fraction in cash, you both accumulate the gains as the bubble inflates, and survive the inevitable crash—and it’s likely you can come out ahead on net. The appropriate ratio depends on the amount of volatility you’re expecting.
I’m not sure how to generalize this insight, but maybe there’s a similar move available? A winter home in Costa Rica, perhaps? Even if that means a smaller summer home here.
The correct move in this situation isn’t to get out early, but to leverage down. By keeping a balanced fraction in cash, you both accumulate the gains as the bubble inflates, and survive the inevitable crash—and it’s likely you can come out ahead on net. The appropriate ratio depends on the amount of volatility you’re expecting.
I’m not sure how to generalize this insight, but maybe there’s a similar move available? A winter home in Costa Rica, perhaps? Even if that means a smaller summer home here.