The Compound
Allergic to Getting Rich
10/15/2025, 11:49:19 PM
Economic Summary
- Charlie Munger's compounding principle: avoid interrupting high-conviction winners; allow positions to run and consider trailing stops rather than wholesale trimming.
- Use allocation bands to manage concentration risk: trim when a position exceeds an upper threshold (e.g., 10% → 7–8%) and buy when it falls to a lower threshold (e.g., 5%).
- Stop-loss risks on volatile individual stocks like UBER: very tight stops (e.g., 50%) can result in being stopped out during deep drawdowns and missing subsequent recoveries, so wider bands or rules-based rebalancing are recommended.
Bullish
- Let winners compound and trail with a stop rather than trimming too early.
- Use allocation bands to trim highs and buy lows, rebalancing into winners.
- Buy more on large crashes to restore target allocation for high-conviction stocks.
Bearish
- Stop losses can force selling into bottoms, e.g., a 50% stop loss may exit before recovery.
- Concentrated positions can cause sleeplessness and emotional mistakes, prompting premature trimming.
Bullish tickers
UBER
Bearish tickers
UBER
UBER
Bullish
Treat as a high-conviction individual holding: use bands to buy on big pullbacks and let winners compound.
Bearish
Volatility can trigger stop-loss exits during deep drawdowns; a 50% stop could prevent later recovery participation.
People mentioned
Charlie MungerKevin O'Leary