Warren Buffett
Warren Buffett, one of the most successful investors of all time, once said that there were only two rules to a successful investing mindset:
| No | Rule |
|---|---|
| 1 | Never lose money. |
| 2 | Never forget rule number one. |
Though obviously said in jest about Wall Street, we can all relate to Buffett's aphorism when it comes to sports trading. Ideally, we want a trading strategy that combines both a positive expectation of winning over time with a low probability of losing all our limited trading capital in the interim.
Nassim Taleb
Nassim Taleb, a former derivatives trader, professor of risk engineering, and successful author is the originator of the 'barbell strategy'. The central idea of this strategy is to protect oneself from catastrophic losses while still pursuing high-risk, high-reward opportunities. In essence, the strategy involves investing a large proportion of your resources in low-risk assets, and a small proportion in high-risk assets with potentially very high rewards.
This approach resonates with Buffett's aphorism in that loss protection is a first-class citizen of the trading strategy.
Rugby Union World Cup 2023
Let us apply this strategy to the upcoming Rugby Union World Cup 2023 in France in September.
Using a nominal £500 (for ease of calculations) with a 90%-10% split between low-risk and high-risk selections in the Winner exchange market, we allocate £450 to backing favorites and £50 to backing underdogs. As you can see, we successfully dutch both groups independently to generate 19% if one of the favorites wins and to generate a whopping 2,486% if a true positive Black Swan event occurs and one of the extreme outsiders delivers an upset. Note that if you are a die-hard follower of Australia, England, Argentina, Wales, or Scotland then you can always replace Ireland with your choice in the favorites grouping and recalculate the stakes.
