If the bull run happened right now, how would that make you feel? Would you be in position? What about your strategies? In this training we’ll discuss how to utilize your Macro Belief and Solvable Problem™ to back into your potential strategies, regardless of the current emotional sentiment of the market.
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Base Case Versus Best Case
We do not operate from a Best Case Scenario.
Best Case comes from an assumption that everything will work out all the time, ignoring time and randomness. The way that TGA prefers to operate is from the highest probability scenario, the Base Case. Sometimes things do align and you end up with the Best Case scenario, that’s great, but don’t plan for this.
What TGA wants to help you develop for yourself is going to be an amalgamation of these three concepts:
- Engineering Luck
- The Adaptive Dilemma
- Solvable Problem™
This will be the highest probability that you get what you want in a timeline that is appropriate for you.
Time And Randomness (Engineering Luck)
As you’ll recall from previous trainings, the longer the time preference the better. Having a long time preference does not mean that it’ll take you that long to be able to get there. But, it will help to reduce the risk of you blowing up. This is like giving yourself an extra hour to drive to your destination versus having to rush. Rushing while you’re already late, will potentially lead to more accidents and panic.
You also understand that randomness will always happen. The more that we plan for a Base Case versus the Best Case, the more that randomness will help us given a longer time preference.
If you need to revisit these principles: Engineering Luck.
Scientific Orientation Vs Dogmatic Orientation (The Adaptive Dilemma)
We are always thinking about the highest probability and decreasing risk. Dogmatic Orientation is going to want and expect the MOST, while the Scientific Orientation will be changing your thinking toward risk adjusted.
If you need to revisit these principles: The Adaptive Dilemma Part 2.
Solvable Problem™
It is very easy to lose track of yourself in extreme highs and lows without a Solvable Problem™.
If you need to revisit these principles: The Solvable Problem™.
“Base Case And Chill”
This will be a concept you hear a lot within TGA. Our recommendation is to not adopt anyone’s Base Case blindly. Your Base Case should be one that you have come to utilizing your own logic, reasoning, and evidence.
“Base Case and Chill” is where you can sit back and not have to worry (day to day, week to week, month to month) about whether or not you’ll be “ok”.
You are on track with the highest probability to achieve your Solvable Problem™.
How It Works- Overview
[Macro Belief] X [Strategy] = Base Case.
Using your own [ Logic, Reasoning, and Evidence ] X [ Frequency of Exposure ] X [ Time Preference ] = Chill
When you have both of these equations you have Base Case and Chill.
Breaking It Down
Macro Belief.
What do you believe will be valuable in a timeline that fits your time preference? The [Asset(s)].
If you need to revisit these principles: Macro Belief
[Strategy X Time].
What is your individual strategy that you are following?
If you need to revisit the concept of Investment Strategies: Here is an overview.
What is an appropriate timeline for you?
The equation then becomes:
[Assets] X [Strategy] X [Time] = Base Case
Why This Is Important
The vicissitudes of the market. How do you guard against the emotions the charts can evoke?
“It’s going up! I gotta buy in before I miss the train.”
“It’s going down! I gotta sell before I get rugged.”
Fear and Greed will override all of our logic, evidence, and reasoning. This is why we want to make decisions in moments of Sobriety for our Base Case in order to overcome Fear and Greed.
Deconstructing And Reconstructing The Base Case
Here are some example scenarios for a Base Case: If you DCA into BTC for 5 years it will get you 30% or more on average= Base Case.
If you day trade and flip profits into BTC for 5 years it will get you 45% or more on average= Base Case.
If you acquire 1 home that meets X criteria per quarter and they are 75% rented out, you’ll get 18% a year on average of 10 years= Base Case.
You can insert whatever number and asset you have come to based on your own logic, reasoning, and evidence.
By doing this, it tells you how to operate. You might be tempted to take more risks and do MORE, which is fine and entirely up to you, just note by doing so you’d lower the probability of getting what you want as defined by your Solvable Problem™.
One of the biggest causes of why people fail is because they get greedy from doing calculations of potential wins and not having a Solvable Problem™ which leads to taking more risk. If you remove all the risk of NOT getting what you want…Well you’re going to get what you want.
How To Start
Back into Base Case strategies starting with your Macro Belief. Don’t reason forward because there is no end it’s just more and more.
- Define Your Macro Belief.
- Have Your Solvable Problem™.
- Work Out Your Base Case.
- Utilize Strategies To Achieve Your Base Case.
As an example: BTC is your Macro Belief and based off your own logic, reasoning, and evidence you believe it will get 30% a year over the next 10 years on average. Now go back to your Solvable Problem™.
If your goal is 5 million in 10 years with an initial investment of $10,000 and recurring monthly of $7,000 you need a 32.8% annual return. With your Macro Belief of BTC you are pretty much there (30% Versus 32.8%).
You reclaim some resources and reallocate it from the 2 Oreo Principle and now you have $9,000 a month. Your Macro Belief has an overage (28.4% Versus 30%).
You can reason to the next step (your Base Case). From your Solvable Problem™ your additional monthly investment required is $9,000. This means as long as you can acquire $9,000 of BTC a month you’ll be on track to reach your Solvable Problem™.
What is the probability of you getting $9,000 a month to purchase BTC?
If you already have an overage of $9,000 a month then all you need to do is set reoccurring buys daily to DCA.
You’re done, this is “Base Case and Chill.”
This would be the highest probability (think back to System Reliability) if you start adding pieces the system probability goes down. You want as few moving pieces as possible. If you need to revisit these principles: System Reliability.
On the other hand, if you only have $7000-8000 a month, maybe your route is day trading to make $9,000 of profit to buy BTC that you stash and put away. You don’t continue to trade once you’ve hit that $9,000 a month because now you’re putting your system at risk (with this methodology).
You can pick whatever strategy you think will help you to close the gap to hit the $9,000 a month. You could figure out how to work harder and more efficiently to make more money in your day job.
Can you see how this helps to inform strategy? Once you have backed into the strategy you can execute it going forward in the path.
Strategy –> Base Case –> Macro Belief.
TGA Macro Belief
Do not blindly follow a Macro Belief regardless of who it is from.
TGA Macro Belief is in GUARD/BUSD over a time frame of 8+ years and because TGA does not need a specific return the strategy is to show up and provide as much value as possible. TGA has come to this conclusion based on our own logic, reasoning, and evidence.
Hopefully this intro into Base Case was helpful. You’ll be tempted to close the loop immediately after this training, we encourage you to leave the loop open and sit with the ideas for a bit as you reflect and complete the task below.
6WU Wisdom Comes From Multiple Perspectives
Can you consolidate your thoughts from this training into six words? Leave your thoughts on the thread below so that others can benefit from your knowledge. Read through what others have put and now you’ll turn your knowledge into wisdom.
https://twitter.com/TheGuardianAcad/status/1620467079974363150?s=20&t=aILmg2jp4e_x5zkwWJM-pw