[Investing] Aggressiveness

Investing is taking a series of bets. How aggressively (the amount of risk in the bet) you invest is directly proportional to your confidence in your ability to predict the outcome of investment. If you have absolutely no confidence in your ability, you should take a bet in which the risk is not tied at all to your ability. This is passive investing and in the case of the stock market this means buying shares of ETF’s… such as SPY, whose return reflects the return of the S&P500.

A common way to objectively measure past performance of ability is using an ex-post information ratio which measures the correlation of the return of non-passive investments against the risk of those non-passive investments.

I’ve started to take a variety of investment bets with varying risks depending on my level of confidence. I do this since I have investment ability primarily in very specific fields (in technology and software) and that is where I take more confident (ie, risky) bets. I obviously do not want to have all my investments in software, but I do not have as great of confidence elsewhere.

I made a mistake earlier of only betting in 3 individual stocks (each was the market leader in its field) and they are the 3 worst performing blue chip stocks since I bought them. One is liquidated and the other two are undervalued. They’re solid long term bets. One of them is seriously doing a wall street limbo (how low can it go?).