I’m skeptical that any “active trading” strategy really works

told that any active trading strategy actually really works. And because I could not sleep last night between 4:00 a.m. and 6:30 a.m., I thought about it and came up with an acronym that describes all the reasons that I think a person's uh active uh trading strategy, whether it's stocks or cryptocurrency or gold or whatever, generally doesn't work. Um, if you have an active trading strategy, which means that you are actively buying and selling uh any asset, then uh I think it's worth thinking through the elements I'm going to lay out here and seeing if your strategy still holds up even in spite of being run through this rubric. So, um, the acronym I came up with, and I'm sure Chat GPT could have given me a better acronym, but I didn't have time to mess with it. And I'm sure investing books have all sorts of acronyms and whatever else. I don't know. This is just what I thought of between 4:00 a.m. and 6:30 a.m. literally this morning. Okay, so the acronym is hardly. H A R D L Y, as in your active tra trading strategy is hardly working or probably isn't working. Uh, but anyway, here's my thoughts. And again, what I would love to be proven wrong. Um, so anybody watching this, I would encourage you, please run your trading strategy through this rubric through the letters H A R D L Y. These six letters. I'm going to throw in a bonus one on the end, which is fees. Um, you know, hardly with an F, like F-rated. A through F-rated. Um, so I'm going to throw out uh each of these, but I would encourage you if you have an active trading strategy to run it through this rubric and see if it passes the the test. Okay. H is for hurdle rate. So any trading strategy can appear to be successful when the uh the measuring stick is shrinking. So the value of the US dollar is shrinking every year. So it's very easy to have a portfolio that looks like it's going up in value when the truth is it's actually falling in value. So the concept of hurdle rate is the minimum rate you have to have for something to be worth doing. The two hurdle rates that you have to be able to clear if you are actively trading anything is gold, the 5,000y old uh you know metal inner rock and the S&P 500 which is the broadest usual measure of the United States stock market. called the so the two most common for a hurdle rate are the S&P 500 that's the standard in pores 500 which are the 500 largest US publicly traded companies which is a practically 80% plus of the US stock market or more and gold the inert yellow rock okay so if your trading strategy is not beating the performance of gold and the S&P 500 then what are you even doing because those are investments that are available to literally anyone for basically free. So the first thing people don't understand is they're like, "Oh, but my portfolio is up 25%." It's like, "Yeah, but in the last 5 years, the dollar is down 25%. So that means you're going nowhere." So H uh the acronym hardly the first the H is for hurdle rate. You need to measure your returns in gold and the broader stock market. And if you're not beating both of those, you're losing ground. the the hurdle rate is not US dollars. If you are measuring your portfolio in US dollars and comparing success and failure to whether it's going up in US dollars, that is failing because that's the wrong measuring stick. The measuring stick is either the S&P 500 or gold. And it's really both. You have to beat the S&P 500 and gold. Uh otherwise again you could either be sitting in a 5,000-y old yellow rock or you could be investing in the broad stock market like anyone could do for free and just not even have to worry about it. So H is for hurdle rate. Um the next in the acronym of hardly A is for all any and all portfolios. So a lot of people when they actively trade things, they have failures and lose money in a lot in various portfolios, but they always end up focused on the one that's making money. The problem is if you're measuring your actual rate of success, you have to subtract the losses from your other portfolios. So, for example, if you're trading cryptocurrency and you're trading precious metals and you're trading stocks and it just so happens that your cryptocurrency portfolio is up and then you start start telling everybody what a great investor you are in cryptocurrency uh or in precious metals, the problem is your strategy or something like it, the active trading strategy was applied to three different things. And you can't just cherrypick the winner. You need to subtract the losers from the winners and see if you're still winning. Otherwise, anyone can be successful. All you have to do is have an active trading strategy, trade a lot of different things, and one of them will be successful. And if you don't subtract the losses of the losers, then the winner is going to look like a winner. But the truth is, when you subtract the losers, you're actually losing. So that'd be the second question I would ask anyone who's trying to actively trade something meaning regularly buy and sell a stock you know bonds commodities uh like gold and silver or sorry precious metals like gold and silver commodity corn which is corn re wheat rice whatever or cryptocurrencies um I would say okay what's your hurdle rate are you measuring based on the S&P 500 and based on gold and are you beating those substantially because those have way lower risk than whatever you're trying to do uh and secondly Have you taken into account everything that you've tried to actively trade? Or have you just set aside the losers and the money losing positions and focused on the thing that's winning? Because if that's the case, again, it could have been the reverse. You're, you know, your crypto portfolio could be down and your gold portfolio could be up. And then you could say, well, I'm just I've got a great strategy for actively trading gold. And the truth is, no. It just happens to be the one of your two, three, four, five portfolios that's performing. But again, if you measure your success, you have to subtract everything you're actively trading that you have losses in from the things that are winning or the one portfolio is winning if you want to get an accurate view of that. And then again, you have to compare that to the hurdle rate of the S&P 500 and gold. Okay? So H is for hurdle rate. A is for any or all portfolios. You got to take them all into account. R is for recession. uh has your strategy been through a recession um uh or a major market correction? That means if you are uh trading in precious metals, you need to have gone through the bare market between 2011 and 2019 for gold. If you're doing stocks, it means your strategy needs to have lived through the great financial crisis of 2008 and 2009. And if you're doing cryptocurrencies, that means your strategy needs to um have lived through the 2022 bare market. So obviously for cryptocurrencies, the most recent bare market was 2022. For gold it was, call it 2011, I think it was 2011 to 2019. Um there was an 8-year span there that it took gold to recover an all-time high. Um and so and uh and again for for stocks, you have to wait a lot. Your strategy has to go back and your strategy has to work before, during, and after. It can't be a strategy that you invented in 2008 or 2009 because the market was so loaded back then that every strategy worked since 2008 and 2009. Every strategy has worked. Uh you literally cannot possibly have a losing strategy since 2009 because the market started so low and has not had a recession since then. So um if you are actively trading stocks your strategy needs to have worked from 2006 and 7 through 8 and 9 and into 10 11 12 13. If you haven't lived through that then the problem is your strategy works great now but you're going to get killed in the next recession and all of the hard work that you did to build your portfolio is going to get wiped out in the next recession which is not going to feel like a recession. It's going to start out feeling like a standard market dip and then suddenly it's going to turn into a recession when your portfolio has gotten just obliterated. It's going to suddenly become clear that it is a recession and that your active trading strategy is not actually working. So if you're doing stocks, you've got to have a strategy that has lived through a recession. H A R R is for recession. Um okay D uh D is for diversification because if your strategy is so high risk that it requires diversification then it's very hard to build wealth that way. So for example some people will come to me and they will they'll say well look I got whatever gold or I've got silver I've got you know some random cryptocurrency and my you know I'm way up on that portfolio. My my question would be what percent of your total net worth or your total assets is that portfolio? Because again, if you have your stuff in, you know, 25 different things and one of them is up and they're equally split, then that means only, you know, 4% of your assets are in one thing. Most of the time, one second. Most of the time when I talk to people and they're excited about being really up on one thing, that one thing is less than 1% of their total net worth, which means even if they double that one thing, their net worth only goes up by 1%. Which is really nothing to write home about. So your strategy only works if it does not require diversification. if the risk profile the risk profile has to let you put a huge amount of your assets into that strategy. Otherwise, again, the strategy works, but so what? If you only have 10% of your assets in that strategy and it doubles, well, your net worth is up 10%. But 10%'s not going to change the world. So, you've got to have, and most people, it's not even 10%. Most people who have an active trading strategy, they're actively trading with less than 1% of their net worth or maybe a couple percentage points of their net worth. The problem is that tells me your strategy is so risky that you can't put real capital to work in it. Which means even if it's successful, it doesn't really do you any good because there's no there's no uh ability to move the needle. Okay? So H A R D is for diversification. If it requires huge diversification because your strategy is so risky, that doesn't work because you just can't get the upside to that. Um, L is luck. Uh, hardly. H A R D L. L is for luck as in does your strategy require luck or is it repeatable by anyone else? Because again, if you try enough things in enough different ways over enough time period, you can get a winning portfolio and you can feel like you're winning and you can feel smart and you can feel like, you know, you're good at this. The problem is if nobody can replicate it, then it's not a it's not a replicatable strategy for other people, which means it's probably not a sound strategy. It also means you probably can't replicate it yourself. Meaning if you reran, if you took the exact same strategy that's worked in the past, let's call it for the last one year, 3 years, 5 years, and put it forward for the next 1 year, 3 years, 5 years, if it requires luck for that to work, then again, the strategy just doesn't work. Um, because again, numerous strategies sound good, but they're not replicatable. Meaning, they require luck to be successful. And no strategy should require luck if it's a sound strategy. So, h a r d luck. Y is years. Years as in can you do this strategy year in and year out without wearing yourself out. So, for example, if you are trading foreign currencies on the Asian stock market, that means you got to wake up in the middle of the night when the Asian stock market opens and you're trading all through the middle of the night. Uh that is very wearing on your body and actively trading any asset is very psychologically weird. uh uh tiresome as in it's a it is very stressful to be actively trading anything. It doesn't matter if it's gold, silver, stocks, bonds, co coin, uh corn, wheat, soybeans, cryptocurrencies, bitcoin. If you are trading something that is very stressful, uh which means that it's not durable over the long term. So again, the y is for years. So to recap here, if you feel like an active trading strategy that you are doing is working, run it through this rubric. One is H, hurdle rate. Are you using gold and the S&P 500 and are you beating those significantly? A are you accounting for any and all portfolios that you have or are currently actively trading or are you just cherrypicking the most recent one that happens to be working and feeling good uh about that as your strategy? So H A R recession has your strategy been through before, during and after a recession because otherwise it has not been battle tested. So, H A R D does it require diversification? Is the risk profile of your strategy so high that you it requires significant diversification? Meaning you can only allocate a very small amount of capital and the answer the way the question to ask yourself on that is what percent of my total net worth is in that strategy. And if the answer is it's small like less than 1% or even less than 10%. Then again the the strategy is too risky to really make a difference in your net worth. So, H A R D and then L for luck. Is that strategy replicatable or did you just, you know, is it just working now? Can you, you know, forecast forward the next 5 years and have it still work as compared to the last 5 years? So, H A R D L Y and Y is for years as in can you keep this up for the long haul? Do you enjoy it? Does it feed your soul? Does it make you happy? And then the last one I'll throw in is is uh fees. Any active trading is going to have cost. And even if you're using a platform that has quote zero trading fees, the only reason the fees are zero is because you're paying a spread. One second. So what is a spread? A spread means, for example, if you're buying the asset, you pay 1% more than the market price, but if you're selling the the asset, you get 1% less than the market price. Now, you may feel good because you're not paying technically paying fees, but is for every buy and sell, you lose 2%. Because again, you're not buying and selling at the midpoint of the market, the the price that actually shows up in the mobile apps. You're not paying that buying and selling at that midpoint. You're buying for 1% more. You're selling for 1% less. So, every time you do it, you lose 2%. And when you you got to factor that into your portfolio, of course, because those trading fees, whether it's $8 a trade on, you know, major exchanges or something like that, or whether it's a percentage, really really really add up. Okay, so now let's run my preferred strategy, Bitcoin, through the exact same rubric to see how my strategy works and why my strategy works for me. Okay, hurdle rate. Yes, Bitcoin has blown away gold and the S&P 500. Obviously, you can cherrypick like one year here or one year there. It hasn't, but if you look over five, three years, 5 years, 10 years, go uh Bitcoin has absolutely obliterated gold and the S&P 500. So using those hurdle rates, Bitcoin is winning. So check Hurdle rate. Bitcoin checks the box. Bitcoin is winning. Um next up, uh one second here. Okay, so H is for hurdle rate. Um a any and all portfolios. Yes, I have taken into account everything that I have invested in and Bitcoin and you know other than private company stocks which can't be actively traded. So I don't count those. Um, I take into account whether I'm winning with this strategy, everything I've done with gold and silver, which I still own a little bit from 2017. Um, the public stocks I've owned, you know, IPOs I've owned, I'm still winning even if you factor in all that sort of stuff. And my buy and hold, so my buy and hold strategy has worked for me, not just with Bitcoin, it's worked for me with everything else I've done it with. So any and all portfolios, check. Uh, H recession. Yes, my strategy has been because all my assets are in cryptocurrency, specifically Bitcoin. My strategy has worked. It was my strategy in 2021, 2022, 2023 before, during, and after the massive market correction in the cryptocurrency industry in 2022. So, my strategy has has been battle tested. It has been through a major massive market draw down uh of 77.5%. the Bitcoin market went from a peak to a trough of 77.5% and my strategy worked all the way through that on coming out on the other side. So, HR Diversification I don't have any I have 100% of my assets. My strategy of Bitcoin does not require diversification because the risk profile of Bitcoin is so low. You can actually put huge amounts of your assets including 100% in my case in Bitcoin. It's an asset that can have 100% in it and work as a strategy. So D for diversification is yeah it doesn't require it. The risk profile of Bitcoin is so low you can have massive exposure to it. So H A R D L it does it require luck? No, there's no luck involved because I'm not timing the market. I'm not timing buys and sells. I'm I'm just buy and hold like anyone can buy and hold. There's no magic to my strategy. It doesn't require some special secret sauce. You just buy as much Bitcoin as you can and you hold on to it for as long as conceivably possible. Same strategy for everyone. No luck involved. Just do it. Uh so H A R D L Y. Y as in years. Yeah, of course I can do it for years because I'm not actively trading anything. I'm just buying it and holding it. Buying and holding any asset by definition is the easiest thing to do for over the years. There's no stress involved. You're not trying to time markets. You're not, you know, checking charts. You're not stressed out about whether you miss something. You're not waking up in the middle of the night to check Asian stock market trading hours. You literally just buy and hold it. And who cares what it's doing? You just wait. And so, yeah, it passes that test. And then the last on fees. Yeah, because you're buying and holding, you're only paying on average a 1% conversion fee one time the time you buy it. or actually on Coinbase Advance it's as low as you know.375%. So for the the actually it's even lower than that for most of the Bitcoin I've bought the total fee I've paid is uh less than 2%. 1/5if of 1%. Because if you're buying large volumes of Bitcoin on Coinbase Advanced you can get the fees down to uh as low as 0.25. Um although I think it's actually actually probably most of the Bitcoin I bought is 0.4% 4% but then I get a quarter of that back. So call it.3 that's probably a better number. So the fees I'm paying for buying and selling Bitcoin are probably around.3% buying and selling for the large amounts on Coinbase Advance. Now again for paychecks and stuff like that I use River. That's 1% in 1% out. But that's again that's 2% over the entire life of the investment. That's not 2% every time you go in and out. because with my strategy, you're only buying it once and then you're only spending it as needed. Um, so anyway, it's just it's very efficient from that perspective. So H for hurdle rate, A for any and all uh portfolios, D uh H A for recession, has it been through one, D for does it require diversification, L for does it require luck, uh Y for can you keep up with it for years? And the bonus F, which is fees, is are you paying fees in a spread? You know, are you getting eaten alive by fees or a spread? And in my strategy, it checks every box the good way. My strategy um beats the hurdle rate, accounts for all any and all uh portfolios. It's been through a recession, does not require diversification, uh does not uh require luck. can you can keep it up for years and the fees are super low. So, um but anyway, if you actively trade or actively manage anything, I would encourage you uh h a r dy and then for bonus f and I would encourage you and I would love to hear your thoughts if you actively trade anything how it holds up against that rubric. And I mean literally like write it down. Write on a piece of paper hy. And then go through your trading strategy and say, "Okay, h dy space." Right? Go through each of those items and say, "Okay, how does this compare to Joel's Bitcoin strategy?" On each of the elements, you know, is it as good as just buying and holding Bitcoin? And I don't think there's any trading strategy in the entire world that beats buying and holding Bitcoin. Um, which is why I have 100% of my liquid assets in Bitcoin and why I never actively trade anything. Um, in fact, I never trade anything. Uh, the the the the earliest I've ever bought or sold something, I think the the the shortest I've ever held an asset was like four years. So, yeah, I have bought a stock and then four years later, I've decided I wanted something else instead. Um, and I sold it for like a private company. Um, now for when I was getting rotating assets into Bitcoin, obviously some of those assets I was holding shorter and shorter periods of time because I was essentially just waiting to convert them into Bitcoin, but that was basically placeholder assets uh on their way to Bitcoin. Uh, that was not actively trading. That was just stuff that I was trying to get ultimately into Bitcoin. So anyway, uh, write that down on a piece of paper or in a spreadsheet and then compare your active trading strategy to each of those letters, H A R D L Y, and then F. And I would love to hear if your trading strategy holds up to that rubric. And if so, look, I am open to be being proven wrong. Uh, you know, I I would love to be proved wrong because I like learning new things. And if I'm proven wrong on something, it means I'm learning something new. Now, I personally don't think I'm going to be proven wrong on this. First of all, a gazillion investing books say don't actively trade. It doesn't work. You always end up eventually losing money. So, it's not like this is my hypothesis. Literally, like almost every investing book you can possibly pick up by any of the investing greats are going to tell you to just buy and hold. So, you know, that's on my side that the vast majority of people who advise anyone on investing would tell them to do exactly the same thing I'm doing or I am recommending, which is buying and hold. The difference is they would not perhaps be buying and holding 100% Bitcoin like I do, but their strategy would still be buying and holding. Um, so you know, I'm in good company from that regard of advocating buying and holding. I'm just advocating buying and holding Bitcoin as opposed to things that perform more poorly than Bitcoin. But again, compare your actively trading strategy to this. I'm encouraged people to not actively trade anything. Don't try it. Don't do it. It's you're not going to win that way. You're going to lose money. And if you don't lose money right out of the gate, you will eventually lose money. And if you don't lose money within a year or two, what's going to happen is you're going to get very good at what you're doing. And it's going to all of these strategies work great until they don't. That is what always happens. They work great until they don't. And when they don't, it wipes out all of the amazing stuff that had accumulated to there. So you can spend 3, five, seven years building your portfolio meticulously with an active trading strategy and then you get hit with a recession that is unexpected and recessions are always unexpected because if you expected them they wouldn't sneak up on you. So recessions always sneak up on people um and then they their portfolio their five seven years of work gets wiped out because they thought it was a dip rather than a recession. Everybody thinks a recession's a dip and it's going to come right back which is why you know they invest on the way down and then as soon as it's clear it's a recession and it's 2008 2009 it wipes out everybody's portfolio and they start from scratch or at least they're starting they're losing you know lost 5 years of their you know life. Um, so I don't advocate anybody actively trade, but if you are actively trading, I would love for you to compare your framework to my rubric that I came up with between 4:00 a.m. and 6:30 a.m. this morning. So, I'm not promising it's it's brilliant because literally I just couldn't sleep. So, I came up with this rubric and here is the video that accompanies it with all my thoughts. Compare that to your strategy and see if it holds up. Mine does. I feel good about my 100% Bitcoin allocation because it holds up under that framework. I don't think hardly any active trading strategies hold up under that framework, but I'm open to being proved wrong and I'd love to hear your thoughts. Thanks, everyone.