"Don't tell me what you think, tell me what you have in your portfolio"
― Nassim Nicholas Taleb, Skin in the Game: Hidden Asymmetries in Daily Life
Last Updated August 2021
My current portfolio is approximately 40% crypto, 20% real estate, 25% venture capital, 10% public equities, and 5% cash / bonds. I know I’m irresponsibly long crypto, which I’m comfortable with since I’ve worked in the industry for years, and as they say, you make concentrated bets to get rich and then diversify your bets to stay rich.
Assorted thoughts on these asset classes below.
Crypto. While I have it all lumped together here, this is really a mix of digital gold and liquid venture investments, which are very different things in my mind. >40% of my crypto portfolio is Bitcoin, which is digital gold and is relatively de-risked, more akin to a late stage growth investment than a true early stage bet like most other crypto-assets. I don’t have much to add to the excellent write ups out there, but I will say that I personally derive more utility from Bitcoin than Gold under virtually any conceivable scenario for the reasons highlighted in the aforementioned write ups and value it materially higher, even though the market has yet to fully recognize that gap in utility. My next largest position is Ethereum (>40% of my portfolio). This is too complicated to explain in a sentence and in my opinion the canonical piece on this is yet to be written, but I will say that almost everyone with any hands on experience agrees it is the most used and useful blockchain. While still early stage, both Bitcoin and Ethereum have more traction than anything else in crypto and not by a little (possibly excepting stable coins, which are largely built on Ethereum and don’t add much to overall portfolio diversification for a US citizen). My portfolio reflects this. The the remainder of my portfolio is largely on chain productive assets, whose cash flow I consider part of my financial independence portfolio. Real value has been created in this space since the ICO boom of 2017.
Real Estate. I view this most tangible of asset classes as the counterpart to my more ephemeral crypto holdings. Ideally this would be inflation protected income producing assets that throw off enough cash to cover my cost of living, though unfortunately I’m not quite there yet and I am also potentially interested in investing in undeveloped land, which is usually a cash sink. With all the capital sloshing around from the Fed money printing at the same time that the internet is making the future of some areas of commercial real estate deeply uncertain, it’s not easy out there, but chaos is a ladder and I’m keeping an eye on it. This is the asset class I wish made up a larger share of my portfolio and where I want to allocate future capital in the near term. I’m currently taking the seemingly contrarian view (at least from Twitter’s perspective) that Californian real estate will continue to be valuable. No matter how dysfunctional the state government is, it still has a monopoly on the warm dry coastline in the US, as Naval likes to say. The state government will likely default on its obligations in my lifetime and only a fool would believe that the pensions promised to the unions today will be paid in full, but 20 years from now it’ll likely still be sunny and 70 degrees 300 days a year where I live and more people will want to spend time here than the locals will want here, as will be true with much of the coastal Californian mountains. It’ll find a way through.
Venture Capital. I typically make 5-10 personal angel / venture investments per year. Unless I have a prior working relationship with the founder, the investments are almost entirely related to crypto or real estate, the two fields I know best. These investments are not due to a desire for diversification, but rather a desire to better understand the frontier and to support great people pushing that frontier, so I generally assume these investments are all going to zero rather than laying the foundation for my retirement, but great people often find a way to deliver and, much to my surprise, I’ve seen quite good (realized and unrealized) returns here, in aggregate. I will likely continue to make 5-10 personal angel / venture investments per year for the foreseeable future even though the lack of liquidity in some successful positions makes this an outsized portion of my net worth.
Public Equities. In general, I don’t like public company equity. There are too many agency problems and I prefer to think of my portfolio as a barbell between tangible assets I can touch, like real estate, and ephemeral bearer assets, like cash, that I could use to purchase distressed assets, or like crypto, that I could take with me, in a crisis. Public equities occupy a weird middle ground where I can’t really touch them and I don’t have complete control over or visibility into them. On top of that, I have worked professionally in crypto, real estate, and venture capital, so I am much more comfortable with those asset classes. When compared with friends and acquaintances at hedge funds, my ignorance with regards to public equities is palpable. That said, I don’t like paying unnecessary taxes, so I try to max out my retirement contributions every year and those funds typically get invested in low cost index funds. Beyond that, I sometimes hold public equities of companies I want to follow (e.g., listen to earnings calls, comb through financials, etc). I usually try to keep this to 5 positions or less to ensure I can actually devote the time to understanding these companies. At the moment, I don’t really have much here as I sold it all off when the GameStop phenomenon made public markets feel a little too unstable for me. My only non retirement account position right now is a small position in Berkshire, which I’ve held for 15 years, approximately the length of time I’ve been trying to make it to one of their annual meetings. Someday I’ll go to. Hopefully before it’s too late.
Bonds and Cash. I view this asset class as toxic waste and try to minimize my exposure whenever possible. You could actually view my exposure as negative if you consider the debt associated with my Real Estate investments. In a prior life I clerked for a bankruptcy judge and am very familiar with where debt sits in the capital stack relative to equity, but I believe we’re in a fixed income bubble and expect to see a major default of some sort in my lifetime. I won’t bet on when this will happen as I hear the market can stay irrational longer than I can stay solvent and of course it’s possible that rates continue to drop through the floor, but the risk / reward trade off is just not there right now. Even though I expect the inevitable default to take the form of inflation rather than refusal to pay, I would just rather hold cash at these rates. Even if it’s being devalued, at least I don’t need to worry about other forms of credit and liquidity risk (for which effectively no compensation is currently provided). In line with most personal finance guidance, I try to keep at least one year of expenses in cash at all time to guarantee my freedom, which is my most precious asset.
This is not generic (or any form of) investment advice. ~85% of my portfolio is in asset classes I’ve worked with professionally over the past decade plus and have above average comfort with, which is probably not true of the average reader. I’m also relatively young and possess reasonably strong earning power, meaning that time is still the largest asset on my personal balance sheet, by far. An 80 year old retiree should not have my asset allocation under any circumstances, nor should any 20 year old who can’t succinctly explain UTXOs, cap rates, and SAFEs. Those are not complex topics, just domain specific knowledge. Unrelatedly, accredited investor laws make no sense.