Ray Dalio’s famous Principles come to mind when I reflect on Silicon Valley Bank’s collapse. Having spent over a decade investing in volatile emerging markets that boom and bust 2-3x more often than DMs, I have my own principles when it comes to managing capital and beyond - the 2 most important are Diversification and Optionality.
Asset classes, currencies, geographies, duration, liquidity - unless you have a healthy mix in your portfolio, its vulnerability to “black swans” makes it much harder to produce long-term sustainable returns.
The same Diversification principle is applicable to your financial infrastructure - have at least 3 active bank accounts in different jurisdictions and at least 2 broker accounts.
The Diversification principle goes beyond the financial management - try to have at least 2 citizenships and/or residence permits as you never know what sort of “black swan” is hiding behind the corner (pandemic, war, tax hike etc)
Optionality is another important principle I learned the hard way. Financial options always have value (don’t come for free) which is correlated with the underlying asset volatility. But in real life, people tend to underestimate the volatility of outcomes which makes optionality particularly valuable while many real life options come almost for free (implying an “arbitrage” opportunity).
It doesn’t cost you much to open an additional bank account, or have your kids applying to multiple universities, or not rush closing an investment ahead of an agreed deadline (e.g. before the DD is fully completed), or even try living in another country and the list goes on.
Here is Andrew Henderson’s (Nomad Capitalist) take on our thoughts re Diversification & Optionality:
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