A response to “Surfing the Debt”

An old friend of mine responded very eloquently to my previous blog, by saying that for him, investment consisted more in following a process than using a strategy. Strategy often implies forecasting and reacting to external forces (markets, central bank policies, macro trends), while Process is about discipline, consistency, and focusing on what’s controllable—like asset allocation, risk tolerance, and re-balancing. 

This echoes the thinking of many seasoned investors and behavioral economists: you can’t control the wind, but you can adjust your sails. He then distinguished between “Extra Wealth” and Savings. Extra wealth is truly surplus—not earmarked for emergencies or lifestyle needs, it’s capital that be invested and exposed to market risk without jeopardizing one’s well-being. 

Savings however are the very important safety net. That’s were cash, bonds, stocks, and real estate—all with cash flow—come into play in a classic income-oriented approach. It avoids speculative assets and prioritizes predictability, liquidity and tangible returns mirroring the philosophy behind many retirement portfolios and endowments, in other words that cash flow is king. 

In his plan, there’s no room for speculation and avoiding assets like gold, crypto, oil, and currencies is a deliberate choice to sidestep assets that don’t produce income, are often driven by sentiment or macro shocks and are both volatile and hard to value. Finally there’s a constant re-balancing activity which consists in maintaining the strategic target between cash, bonds, stocks and real-estate following market ups (sell) and down (buy). 

By doing this, my friend is reducing emotional decision-making, avoiding overexposure to any one asset class and practicing a form of systematic contrarianism. A conservative and emotionally intelligent way to delineate financial roles.