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Raoul Pal

Keep learning, stay flexible, and always be ready to adapt as new data comes in.

The everything code is not a set of rigid rules, but a checklist to follow in understanding the big picture and forces at play, then using that knowledge to make informed investment decisions.

The Everything Code​

Is the world going to become more less digital?

  1. Understand the business cycle:
    • Use tools like the ISM (Institute for Supply Management) index to track this.
    • Different assets perform better in different phases of the cycle.
  2. Liquidity is everything:
    • Global liquidity, driven by central bank policies and debt cycles, is a primary driver of asset prices.
    • Incredibly high correlations exist between liquidity and asset prices, especially for the NASDAQ and Bitcoin.
    • Understanding liquidity flows can help you anticipate market moves.
  3. Demographics drive everything:
    • Demographic trends are the underlying force behind many economic and market dynamics. They influence productivity, debt levels, and economic growth.
    • Understanding these long-term trends can help you position for secular shifts.
  4. Debt cycles and currency debasement:
    • The global debt situation is a key factor. Governments are using currency debasement (through liquidity injection) to manage debt loads.
    • This has profound implications for asset prices and investment strategies.
  5. Focus on secular trends:
    • Identify and invest in the major secular trends.
    • The two biggest are cryptocurrencies and technology.
    • These trends have outperformed everything else and are likely to continue doing so.
  6. Understand the four macro seasons:
    • The business cycle is broken down into seasons based on growth and inflation dynamics.
    • Each season favours different asset classes.
    • Learning to recognize these seasons can help you adjust your portfolio accordingly.
  7. Use lead indicators:
    • Isolate lead indicators that help to forecast where we are heading in the business cycle.
    • This allows us to position ahead of major shifts.
  8. Embrace the Banana Zone when all the factors align:
    • liquidity is flowing
    • we're in the right part of the business cycle
    • secular trends are in full force.
    • These are the periods of exceptional returns.

Application​

To apply this to your own investing:

  1. Start by understanding where we are in the business cycle and liquidity trends. Develop a Macro Investing Tool to help with this.
  2. Position your portfolio to align with the current macro season, but also look ahead to what's coming next.
  3. Maintain significant exposure to the major secular trends
    • Crypto
    • Technology.
  4. Be prepared for cyclical shifts, but don't lose sight of the long-term trends.
  5. Use periods of market fear (often driven by liquidity contractions) as buying opportunities in the secular trend assets.
  6. Remember, the goal is to capture the big moves.
tip

Capture big moves; Don't get too caught up in short-term noise.

Time Horizon and Risk Positioning​

Approach to time horizon and risk management centers on maintaining a long-term perspective, concentrating investments in high-conviction areas, embracing market volatility as an opportunity, and aligning investments with major macro trends. This strategy emphasizes psychological preparation and simplification of investment theses to navigate the complexities of the market.

  1. Long-term perspective: Pal emphasizes the importance of adopting a long-term view when investing, particularly in crypto and technology assets. He advises against trying to time market tops and bottoms, instead focusing on the overall trend.
  2. Embrace volatility: Rather than fearing market sell-offs, Pal suggests viewing them as opportunities to accumulate more assets at discounted prices. He encourages investors to "look forward to sell-offs" as chances to compound wealth.
  3. Concentrated portfolio: Pal reveals that 90% of his liquid net worth is allocated to Solana, with some high-end NFTs and other speculative investments. This demonstrates his belief in concentrated positioning rather than excessive diversification.
  4. Risk management through time horizon: Instead of using complex hedging strategies, Pal manages risk primarily through his extended time horizon. He believes that over long periods, the upward trend of exponential assets will outweigh short-term volatility.
  5. Avoid leverage: While not explicitly stated in this interview, Pal has consistently advised against using leverage in crypto investments due to the inherent volatility of the asset class.
  6. Focus on secular trends: Pal emphasizes investing in assets benefiting from long-term macro trends, particularly in technology and crypto, which he sees as the primary beneficiaries of the current liquidity cycle.
  7. Psychological preparation: He stresses the importance of mentally preparing for market cycles and volatility. By changing one's mindset to embrace market fluctuations, investors can avoid emotional decision-making.
  8. Simplify the investment thesis: Pal advocates for a simplified investment approach based on clear trends, such as increasing digitalization. This helps in maintaining conviction during market turbulence.
  9. Liquidity cycle awareness: Understanding the broader liquidity cycles and their impact on asset prices can help in positioning and managing expectations for different market phases.
  10. Balancing act: While focusing on high-growth areas, Pal also recognizes the value of having exposure to more stable assets like Bitcoin, which he sees as "pristine collateral" in a world of currency debasement.

Attachments​